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6 

THE 


WORKING  PRINCIPLES 


POLITICAL  ECONOMY 


IN  A  NEW  AND  PUAOTIOAL  FORM 


A  BOOK  FOR  BEGINNERS 


IJUN  141U3/  ) 
S^M.^  M  ACVANE      'Xi^-I'l'S'''^' 


McLean  Pbofessor  ov  IIibtort  in  lURVAau  C!olleob 


Second  Edition.    Revised. 
NEW  YORK: 

Maynard,  Merrill,  &  Co,, 

89,  81,  AMD  88  Ea8t  19th  Street. 
1897. 


\-^ 


■-,m^im 


^kmmm^v^sm^^mm^^' 


it' 


A' 


$ 


^'  ^ 


COPVRIOUT, 

1800  and  1807, 
Dv  S.  M.  MACVANE. 


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PREFACE. 


TiiR  aim  of  this  book  in  to  give,  in  amall  contpnaa,  n 
auHlcieiit  view  of  econoinio  doctrifio  for  the  ordinary  needs 
of  inUilligent  citizens.  I  have  hftd  two  principal  motives 
in  writing  it.  In  the  Hrst  place,  I  wished  to  ahow  that 
tlio  principles  of  Political  Kconomy  may  he  develoiwd  in 
such  a  form  as  to  bring  out,  more  clearly  th(ui  is  done 
in  tlio  standard  hooka,  their  cloae  and  vital  connection 
with  every-day  industry.  In  the  aecond  place,  I  wished 
to  suggest  some  modifications,  chiefly  in  points  of  detail, 
of  the  conclusions  commonly  accepted  hitherto  by  the 
leading  economists. 

Political  Economy  is  among  the  most  practical  of  sci- 
ences, yet  it  has  been  made  to  look  very  much  like  an 
abstract  philosophy.  The  great  writers  seem  to  have 
been  more  concerned  about  the  logical  validity  of  their 
reasoning,  than  they  wore  t«j  keep  their  work,  at  all 
[K)ints,  plainly  and  closely  in  touch  with  the  mechanism 
of  practical  business.  The  result  is,  thot  their  readers, 
after  mastering  the  doctrine  as  a  matter  of  abstract 
theory,  are  too  often  quite  in  the  dark  as  to  the  precise 
mode  of  its  api)lication  in  practice.  Economic  truth  can 
hardly  obtain  general  acceptance,  as  the  basis  of  inxlus- 
trial  hygiene,  until  it  is  so  presented  as  to  apply,  directly 
and  without  laborious  interpretation,  to  the  visible  facts 
t)f  industrial  life. 


,:W^ 


In  the  little  IkmiU  haw  offored.  the  attempt  is  mwle 
to  work  out  th«  l«tt(liu«  iirinciploii  of  (Monoiuira  with  « 
connUnt  eye  on  octual  f^\Mn.  The  fa<;t«  dincusHfld  are 
taken  in  thoir  ordinary,  olm«rval.l.i  form;  th«  Htu<l«nt  in 
aHki]<l  and  htdiKjd  to  onalyzo  thoin,  witli  a  vi.m  of  jH^r- 
cciving  their  ruhitioiiH  to  each  «»ther,  and  the  umhirlying 
principloH  hy  whicli  thoy  are  controlled.  The  [.Ian  has 
difllculticfl  which  the  more  abstract  treatninnt  avoids; 
but  I  hojKs  the  character  of  tho  rosult  may  !«  founu  a 
■ufllciont  compensation. 

Tho  modiHcation»  of  theory  which   I   have  ventured 
to  »uKK«st  grow  naturally  out  of  tlio  method  I  have  fol- 
lowed.     In  all  fundamental   i.oints,  my   reHult«    ar«    in 
«id)8tantial  harmony    with  the   teachings   of    the   ohler 
economiBts.     But  in  the  aualysiH  of  cost  of  production, 
and  in  the  consequent  distinction  Iwtween  savings  and 
working  capiUil.  I  have  ventured  on  an  innovation  which 
seems  to  bo  called  for  in  tho  interest  of  clearnoHS.  both 
in  tho  discussion  of  wages  and  in  tho  law  of  value.     In 
tho  treatment  of  money  and  prices,  I  have  departed  con- 
Bidorably,  in   secondary  points,  from  tho  lioaton   track. 
In  developing  tho  theory  of  prices.  I  found  it  necessary 
to  have  tho  uso  of  a  term  which  should  recognize  bank 
deposits  as  an  integral  part  of  tho  circulation.     Tho  terrn 
"  bank  currency,"  though  not  free  from  objection,  seomod 
on  tho  whole  Lo  Ins  the  one  most  suitable  for  the  case. 
T  accordingly  adopted  it.  with  the  understanding  tuat  it 
includes,  on  the  side  of  Notes,  those  issued  by  (iovern- 
raents  as  well  as  those  issued  by  ordinary  banks. 

In  tho  great  question  of  Protection  and  Free  Trade,  I 
have  simply  tried  to  indicate  tho  grounds  of  controversy. 
So  long  as  the  Tariff  is  a  political  issue,  it  seems  only 
fair  that  a  book  intended,  in  part,  for  uso  in  High  Schools' 


iV< 


vll 


»|(t  Is  miwle 
)mi<!8  with  u 
1iH(;iiHHfl<l  nra 
Id  Htudunt  ifl 
viow  of  jKir- 
)  undorlyitig 
rhe  [iltut  hoA 
nciit  fivoi(!(i; 
r  be  founu  a 

[ivo  ventured 
(I  I  hftvo  fol- 
Hultfl  nru  in 
u(  the  oldflr 
if  production, 
I  aavingH  and 
)vation  which 
lonrnoHH,  both 
of  vahio.  In 
d(>  parted  con- 
Uaten  track. 
I  it  necoBsary 
jcognize  bank 
)n.  The  term 
action,  seemod 

for  the  case, 
mding  tiiat  it 
3d  by  (lovorn- 
'  banks. 

Free  Trade,  I 
)f  controversy, 
it  seems  only 
I  High  Schools" 


should  contain  notliing  uironiiivo  to  oithor  of  the  {wrtiot 
into  which  our  citixons  aro  dividud. 

Thin  bii'tk  niakttH  no  prottuico  of  being  cosy  rending. 
The  Hubjui't-uiattur  is,  I  think,  too  complex,  and  nt  noiiio 
points  t<M)  tilusivo,  to  admit  of  n  trcutniciit  that  nhiill  Ih) 
at  onco  cnsy  and  ndiuiuiitf  Tli.'  Ih'sI  n  wriU'r  can  ho|Kj 
for  is  that  his  work  nhnll  Im-  luiuid  clciir  mid  instructive 
by  thoHC  who  give  time  to  thti  study  of  it.  Not  that 
I'tditical  Kconomy  is,  on  the  whoU),  a  very  diflllcult  study. 
It  merely  calls  for  some  patient  reflection,  ««iH)cially  at 
those  critical  points  whore  sound  reason  is  opjMJScd  to 
superficial  apinwirances.  There  is  nothing  in  the  science 
that  young  jwrsons  of  ordinary  ability  may  not  mast^T, 
if  only  they  apply  themselves.  It  would  im  a  Imppy 
reform  in  our  national  education,  if  a  portion  of  the 
time  that  is  now  spent  by  our  youth  over  barren  puzzles 
in  percentoge,  and  the  arid  subtleties  of  formal  gram- 
mai  (Knglish  and  other),  were  devoted  to  inttdligtsnt 
study  of  elementary  economics.  I  cheri.sh  a  Iioih)  that 
this  little  book  may  do  something  t<jwards  promoting 
such  a  reform. 

CAMnuiiMiR,  Mau., 
Dec.  IH8U. 


CONTKNTS. 


CMArrKH  FAOi 

I.    This  Mrirnv  i»ir  I'oi.itioai.  F.cnNOMV  .       ,       .11 
II.    DiviMiitN  or  l.AHoH:  KxruAMor,  or  rNunucTMi 

WlUINtl   VlKW  or  MONRY  ....  17 

ITT.    TiiK  I'mrn  or  MoNKV!  Hiiyi.>«o  ani>  Mri.i.ino    .      US 
(jUKRtioiia  niid  Kxt>riiiii«ii .        ,        ,        ,        ,  :|5 

IV.    Or  Wkaltii   ani>  tiiic   Dimtinution   iir.rwKr.N 

NaTUHAI.  WkAI.TII  ANI>  WkALTII  fltOltUCKO 

iir  r.AiioH ae 

V.     Why  NATiriiAi.  Wkai.th,  ohioinai.i.y  a  fJirr  ro 

Mr.M,    CANNOT     AI.WAYB    UK    OIITAI.NKO     roH 

NoTHINO 48 

VI.      Or   LaNOR,   ANt>   ITK    pROOrCTIVRNRM       .  AS 

VIF.    Natuiik  ano  Nkckhhity  or  CAi-irAr.  M 

Vril.      CAn  •.■.!.     HkI'HKHKNTA       iNtXrKTHIAI.      ImI'IIOVK- 

MRNTH  05 

IX.    Two  Ci.AMM  or  I'KooircRM,   LAnoHriiM   ani» 

Emi'loykkh 72 

Quention.1  ami  KinrciHOii 88 

X.    Or  Vai,!ik  in  Kxchanor          ....  80 
XI.    Co«T  or  rHoiiucrioN  ah  thk  Ultimatr  IIkou- 

i.AToii  or  Vai.uk 82 

XII.     KxcKi'TioNrt  TO  THK  (Iknkhai.  Law  or  Vai.ur  100 

QuesliotiH  ami  Kx»rciii««      .....  130 

iz 


I 


Contents. 


XIII. 

XIV. 

XV. 

XVI. 

XVII. 

XVIII. 

XIX. 

XX. 

XXI. 

XXII. 

XXIII. 

XXIV. 

XXV. 

XXVI. 
XXVII. 

Index 


Of  ^RICE^  oil  THE  Value  of  MoNsr  . 

PllODUCTION    OK    THE    PuECHiUS   MkTAI.S       . 

Hank  C"i  kkencv 

Questions  uetweew  Gold  and  Silveb    . 

INCOSVKIITIBLE    LeGAL   TiSNDER    NoTES  . 

Questions  and  Exercises 

WaOEH    and   PllOKlTS    AS   PoUTIONS  OF  T.IE  PttO- 
DIICT    OF    InDL'STHY        .  .  •  •  • 

Wages  of  Individual  Lauoueks 
Fuutiiek  Consideuations  Heqaudino  Wages 
Phokits  of  Individual  Emi-loykus 
Intkhest  on  Boj'kowed  Savings 
l-noDucTivENKHS   OK   Natukal   Aoents  :  Eco- 
nomic Rent 

Consequences  of  Di-iinisiiing  Ret jkns  . 

Questions  and  Exercises 

Exchange  ok  Pkoducts  betwei-.n   Separate 

Communities,  ou  International  Trade 
Frek  Trade  and  Protection    .        .       . 
Concluding  Sug<{E8Tions 

Q,uestions  and  Exercises     .        .        .        •        • 


I'AOU 

122 
.    141 

160 
.    165 

182 
.    102 


104 
212 
231 
251 
270 

286 
310 
321 

323 
349 
364 
377 
881 


Vauu 
l'J2 

.  .  141 
150 

.  .  16S 
182 

.        .    102 

E  PUO 

.       104 

212 

VVAGErt      231 

.        251 
.        .    270 
:   Eco- 

.        286 

IS.        .    810 
321 

PAR AT K 

[•hade       323 

.    849 

.        .364 

.       .    877 

.       .        881 


Political    Economy. 


CHAPTER    I. 

THE   STUDY   OF    POLITICAL    ECONOMY. 

1.  Political  Economy  and  Daily  Life.  —  The  general 
subject  of  political  economy  is  wealth,  which  is  simply 
a  short  name  for  the  numberless  things  we  all  like  to 
have  and  to  own.  Everybody  needs  some  wealth  in 
order  to  live;  most  persons  are  eager  to  get  a  great 
deal  of  it,  —  more,  perhaps,  than  would  be  good  for 
them,  if  tliey  got  it.  How  to  get  the  wealth  we  need 
in  the  world  is,  for  most  of  us,  a  very  serious  question. 
Few  therefore,  even  among  young  people,  can  be  en- 
tirely ignorani  of  some  at  least  of  the  ways  by  which 
wealth  may  be  obtained.  There  are  few  who  have 
not  seen  some  kinds  of  wealth  actually  produced. 

Tliose  who  live  in  the  country,  or  have  even  spent 
their  holidays  there,  must  have  seen  something  of  the 
ways  by  which  a  very  important  part  of  wealth,  namely, 
our  food,  is  produced.  Those  who  live  in  the  city  wit- 
ness the  activity  of  mills  and  factories  and  the  busy 
operations  of  commerce.     We   have   all  seen  men    at 

11 


1 


d^MiBUU 


12 


Fbliticat  Economy, 


work,  mid  know  in  a  general  way  what  labor  accom- 
plishes. There  are  but  few  of  us  who  have  not  seen 
niaf'hinery  in  oi)eration,  or  are  ignorant  of  the  powerful 
aid  it  gives  to  human  labor.  Everybody  knows  what 
it  is  to  buy  and  to  sell.  We  are  all  familiar  with  the 
use  of  money,  and  checks,  and  bank-notes.  We  all 
know  the  difference  between  saving  and  spending,  and 
between  diligence  and  sloth.  No  intelligent  person  can 
grow  up  in  a  civilized  community  without  often  hearing 
and  thinking  about  these  matters,  for  they  are  part  and 
parcel  of  our  daily  life. 

Now  these  are  the  chief  topics  of  political  economy. 
The  object  of  the  science  is  to  study  the  conditions 
under  which  we  carry  on  the  struggle  for  the  means 
to  supply  our  daily  wants,  —  the  struggle  for  wealth. 
It  aims  to  discover  the  principles  that  govern  the  pro- 
duction and  sharing  of  wealth;  the  circumstances  that 
favor  and  those  that  obstruct  the  largest  production 
and  the  fairest  sharing  of  the  product. 

2.  True  and  False  Politioal  Economy.  —  It  is  at  once 
an  advantage  and  a  disadvantage  for  political  economy 
tliat  it  deals  with  subjects  that  enter  so  closely  into 
our  daily  life.  The  advantage  is  that  the  science  must 
always  possess  great  interest  for  every  intelligent  lover 
of  his  country  and  his  fellow-men;  it  can  never  lack 
earnest  and  devoted  students.  The  disadvantage  is 
that  beginners  in  political  economy  are  seldom  wholly 
beginners.  Their  familiarity,  in  practical  ways,  with 
many  of  the  topics    and   questions  of  the  science, — 


Difficulties  of  the  Study. 


13 


bor  accom- 
e  not  seen 
10  powerful 
uows  what 
ir  with  tho 
3.  We  all 
ending,  and 
person  can 
ten  hearing 
re  part  and 

il  economy. 

conditions 

the   means 

for  wealth. 

rn  the  pro- 

itances  that 

production 

is  at  once 
lal  economy 
closely  into 
cience  must 
ligent  lover 

never  lack 
dvantage  is 
iom  wholly 
v/ays,   with 

science, — 


things  they  hear  and  ideas  they  pick  up  in  one  way 
or  another, — give  them  a  sort  of  political  economy 
before  coming  to  the  set  study  of  it. 

Now  if  this  political  economy  were  good  and  sound 
80 'far  as  it  goes,  it  would  save  us  the  necessity  of 
much  elementary  explanation  and  definition.  Ikit,  un- 
fortunately, it  is  for  the  most  part  wrong.  It  is  adopted 
without  sufficient  reflection,  is  not  tested  at  all,  and  has 
usually  no  better  basis  than  half-seen  facts  or  wholly 
misinterpreted  relations  of  things. 

Economic  subjects  are  peculiarly  ill  adapted  for  hasty 
treatment,  being  full  of  pitfalls  for  the  unwarj'.  They 
often  have,  superficially,  an  appearance  of  great  sim- 
plicity, while  they  are  in  fact  highly  complicated.  The 
motions  of  the  earth  and  its  true  relations  to  the 
heavenly  bodies  are  not  more  eflectually  disguised  to 
the  careless  observer  than  are  the  real  facts  of  eco- 
nomic life.  o  pierce  through  the  illusions  and  gain 
a  clear  view  of  things  as  they  really  are,  demands  an 
amount  of  thought  and  study  that  busy  people  are 
seldom  able,  and  careless  people  are  seldom  willing, 
to  bestow. 

So  it  comes  to  pass  that  popular  political  economy 
is  so  often  erroneous.  So  also  it  comes  to  pass  that 
beginners  in  the  set  study  of  political  economy  have 
usually  much  to  unlearn.  They  have  to  give  up  ideas 
which  they  previously  regarded  as  familiar  and  unques- 
tionable truths.  Much  of  the  space  in  every  book  on 
political  economy  has  to  be  devoted  to  the  refutation 


1 


_».' 


14 


Pblitical  Economy. 


of  false  thcoricifl.  In  fact,  the  prevalence  of  wrong 
ideas  is  one  of  the  chief  causes  for  the  existence  of 
political  economy.  If  the  laws  of  production,  wages, 
currency,  etc.,  wore  so  clear  and  simple  that  he  who 
runs  might  read,  there  would  bo  no  occasion  to  spend 
time  in  writing  or  studying  books  about  them. 

But  it  is  not  only  false  tl'.eories  that  beginners  have 
to  unlearn.  They  have  to  unlearn  wrong  ways  of  look- 
ing at  things  and  fallacious  modes  of  reasoning  about 
them.  This  is  more  difficult.  Habits  of  thought  are 
hard  to  shake  off.  Long  after  the  student  has  per- 
ceived the  faultiness  of  his  former  way  of  thinking,  he 
ie  apt  to  find  himself  unconsciously  falling  back  into 
it.  Other  sciences  have  no  such  obstacles  to  contend 
against.  In  chemistry,  for  example,  the  student  has 
everything  to  learn;  but  then  he  has  nothing  to  uq- 
learn.  He  comes  to  the  study  with  a  mind  open  to 
the  truth,  and  can  advance  from  point  to  point  unem- 
barrassed by  any  relics  of  past  errors. 

3.  PolitiottI  Economy  and  Politics.  —  The  fact  that 
political  economy  has  to  appeal  to  reason  in  opposition 
to  appearances,  and  has  to  reject  as  false  so  many  views 
held  by  the  unthinking,  makes  the  spread  of  economic 
truth  slow  and  difficult.  The  close  connection  of 
economic  questions  with  the  daily  life  and  welfare 
of  the  people  tends  rather  to  aggravate  than  to 
diminish  this  difficulty.  There  must  be  laws  about 
trade,  and  the  currency,  and  banking,  and  taxes.  Now 
men  are  almost  certain  to  disagree  as  to  the  kind  of 


Economic  Questions  in  JUitics. 


16 


of  wrong 
ixistence  of 
Lion,  wages, 
uit  ho  who 
)ii  to  spend 
um. 

[inners  have 
ays  of  look- 
jiiiiig  about 
thought  aro 
lit  has  Per- 
th inking,  he 
I  back  into 
I  to  contend 
student  has 
hing  to  un- 
nd  open  to 
point  unem- 

6  fact  that 
n  opposition 

many  views 

of  economic 
)nnection    of 

and  welfare 
kte    than    to 

laws  about 
taxes.    Now 

the  kind  of 


laws  it  would  be  wise  to  pass  in  relation  to  such 
matters.  Thus  in  every  free  country  economic  (lues- 
tions  often  become  political  (lucstioiip.  This  view  or 
that  principle  becomes  tlie  rullying-ciry  of  a  party.  In 
the  debates  that  ensue  men  are  prone  to  seek  argu- 
ments rather  than  ths  truth,  and  jtolitical  success 
rather  tlmn  the  public  welfare.  In  such  contests  it  is 
unfortunately  true  that  sound  and  just  principles  are 
often  dilficult  to  explain  and  upliold  in  opposition  to 
false  and  glittering  theories^  that  seem  tt)  be  more 
in  harmony  with  daily  observation. 

Fallacies  exist  only  because  false  doctrine  often  looks 
truer  than  the  truth.  As  political  economy  has  many 
such  strongly  entrenched  fallacies  to  expose  and  refute, 
and  has  to  run  counter  to  the  cherished  opinions  of 
large  classes  of  men  in  relation  to  subjects  that  in- 
terest them  deeply,  it  is  inevitable  that  it  sliould  be 
regarded  by  many  as  a  tissue  of  idle  dreams,  or  even 
something  worse. 

The  science  has  also  suffered  from  the  denunciations 
of  benevolent  enthusiasts  wliose  schemes  for  the  im- 
provement of  the  world  it  has  had  to  oppose.  Well- 
intending  visionaries  take  it  amiss  to  be  reminded  of 
the  hard  realities  of  life.  The  offence  of  political 
economy  is  that  it  insists  on  getting  at  the  true 
causes  of  the  poverty  and  misery  that  are  so, sadly 
prevalent  in  the  world.  It  rejects  all  remedies  that  do 
not  address  themselves  to  the  seat  and  source  of  the 
disease.    For  this,  eloquent  enthusiasts  have  denounced 


16 


Jblitical  Kconi'tay. 


it  as  "the  gloomy  science,"  and  an  enemy  of  liumuii 
progro88.     Tlioy  hiivo  no  doubt  turned  many  against  it. 

Yet  political  economy  is  but  reason  and  common 
sense  applied  to  practical  affairs.  It  has  made  great 
progress  in  the  last  hundred  years,  and  is  steadily,  if 
slowly,  winning  its  way  to  general  acceptance.  Even 
in  quarters  wliere  it  is  rejected  as  a  system,  many  of 
its  most  important  principles  are  followed  in  practice. 


tiuiny  of  luuiiuii 
uaiiy  against  it. 
)ii  iuul  common 
liaH  iimdo  great 
d  ia  steadily,  if 
;coptanco.  Even 
ystem,  many  of 
Vtid  in  practice. 


CHAITEH    II. 

DIVISION    OP    LABOR      BXOHANOB   OF    PRODUOTS.  - 
WRONG    VIEW    OP    MONEY. 

1.  The  struggle  for  Money,  —  Tlu?  Hourco  of  many 
wrung  thcoriii.s  abniit  economic  subjects  is  found  in  the 
UHo  of  money  in  business  transactions.  Money  is  exceed- 
ingly imimrtant  to  us  in  practical  ways,  and  at  the  same 
time  hard  to  get.  To  a  superficial  ob.server  the  struggle 
of  life  may  well  seem  to  bo  a  struggle  for  money. 
AH  our  gains,  and  the  worth  of  all  our  possessions, 
are  expressed  in  money.  The  man  who  has  plenty  of 
money  is  regarded  as  rich;  the  man  who  has  none  is 
regarded  as  poor. 

Industrial  labors  of  all  kinds  are  apt  to  bo  thought 
of  merely  as  ways  of  getting  money.  The  laborer  who 
works  in  the  factory  or  in  the  field;  the  employer 
who  plans  and  directs  the  work;  the  merchant  who 
buys  the  product  and  sells  it  again ;  the  builders  of 
houses  and  ahips  and  railways ;  the  inventors  of  ma- 
chinery and  the  owners  of  land,  — all  seem  to  eicert 
themselves  only  for  the  sake  of  the  money  they  hope 
to  get  in  return. 

3.  Honey  not  Uaefnl  in  Itself.  —  Now  this  view  of 
industrial  activity,  though  natural  and  convenient  for 

n 


t 


H 


Vrnrttonl  purpo««H,  is  tnt.illy  fulso  m«'?  mislnuliiiK  wlimi 
UHod  iiH  the,  ImsiH  of  or'.mou.ic  tlioorieH  Tho  lifHt  Htep 
in  tho  Htu.ly  of  politiciil  occ.iiomy  is  to  «ftin  a  larger 
ftiul  truer  viow  of  in.lustrial  oiHiratioiiH.  <)ii<*  wl><'  r.-.- 
||,,rt8  a  littlo  will  in'rcoivo  that  in«)«»«y,  ii>  'i''<l  "f  't^^'". 
huH  ....  qualiticH  that  HhouM  inaku  it  a»  ..hjort  nf  ,nu- 
v.-rsal  .lUi^Ht.  It  in,  in  truth,  tho  ono  form  of  wealth 
tliat  has  no  indepcndont  use  for  us.  Kvcry  other  thing 
is  useful  in  itself;  money  is  useful  only  as  a  means  of 
getting  other  things. 

If  8.)nie  unseen  power  were  su.hlenly  to  .lepnve 
evoryhody  of  all  things  that  are  good  to  eat  or  t<.  drnik 
or  to  wear  or  to  enjoy  in  other  ways,  leaving  even  a 
most  liberal  price  in  money  for  everything  so  taken 
away  it  is  easy  to  see  that  the  money  would  not  save 
us  from  cold,  hunger,  and  misery.  Money  is  useful 
only  where  we  can  get  other  things  in  exchange  for 
it  —useful  only  when  wo  part  with  it. 

'3    Division  of  Labor- Why,  inen,  are  men  fo  much 
concerned  about  money  ?     Why  care  for  it  or  use  it  at 
all  ?    In  order  to  answer  these  questions  we  must  con- 
sider a  point  of  the  very  highest   in.portance  in  actual 
life  as  well  as  in  political  economy.      Civilized  life  de- 
.uands   the   use   of  many   different   commodities.      One 
has  only  to  think   of   the   various   things  a  person   m 
ordinary  circumstances  makes  use  of  in  the  course  of  a 
single  day.  in  order  to  perceive  how  great  the  number 
and  variety  of  commodities  necessary  for  comfortable 
livuig. 


Ii'iitliiiK  wlirii 
'ho  tirat  Htup 

()ii»(  will!  ru- 
aiitl  of  itself, 
iihjiM't  tif  >mi- 
iriii  of  wealth 
y  other  thnig 
iH  a  incanH  of 

ly  to  <leprivo 
!iit  or  to  drink 
eiiviiig  even  u 
»in<»  8o  taken 
.rould  not  save 
Micy  is  uRefnl 
I  exchange  for 

men  fo  much 
it  or  U80  it  at 

we  must  con- 
tanco  in  actual 
ivilized  life  dc- 
moditius.  One 
gs  a  i)erson  in 
the  course  of  a 
eat  the  number 
for  comfortable 


Din»um  qf  /ttthor. 


19 


Now,  no  one  jM'rson  could  poHHibly  hucccimI  in  making 
HO  many  things.  Life  in  Um  short  to  hmrn  the  way  «»f 
making  even  a  small  part  of  them.  If  each  iwrson 
W(!re  limited  to  the  tliingn  lie  could  produce  for  himstdf, 
wi!  could  lu'vvr  rise  above  the  ((iiidition  of  rude  bar- 
l)arianH,  Oivili/ation  is  po.s,«*ible  only  liy  dividing  up  the 
work  of  production,  —  by  arranging  that  eacii  protUuer 
shall  nuike  enough  of  one  t!ominodity  fc»r  a  c»inaid«!rablu 
nundier  besides  himself.  This  is  called  Divinon  of 
Labor.  The  following  great  advanUiges  are  gained  by 
the  uxn  rif  it 

4.  Advantagef  of  Diviiion  of  Labor,  —  (u)  A  great 
saving  of  time  in  learning  how  to  make  thing.".  Tiiere 
ore  but  few  things  that  ton  be  made  projHnly  without 
some  degree  of  skill  and  special  knowledge.  Skill  can 
be  accpiired  only  by  practice.  All  tine  and  compli- 
cated jiroducts  re<juire  miudi  skill  and  knowledge: 
years  of  practice  are  necessary  for  learning  the  art  (»f 
making  them.  If  every  nmn  had  to  learn  the  art 
of  making  .shoes,  for  example,  merely  in  order  to  supply 
his  own  need  of  them,  one  can  readily  see  how  great 
a  waste  of  time  there  would  be.  By  arrangnig  that  one 
man  shall  learn  the  art,  and  shall  make  shoes  for  many 
others,  a  great  saving  is  eflected  in  the  work  of  learning. 

(6)  A  man  who  devotes  himself  to  the  production 
of  one  thii>g  learns  the  art  of  making  that  one  thing 
thoroughly.  He  learns  all  about  the  materials  and 
tools.  He  seldom  wastes  time  and  materials  by  bung- 
ling.    He  learns  to  turn  everytliing  to  the  best  account 


..u  i^^^^^m,mm 


30 


lUiliiiit   Ki-ommif, 


Thiiii  h»  i«  !•».!•*  to  iiiiiko  n  ImiIUt  Rrtlclo,  nu.l  In  in«k« 
it  ,uon,  Mui.kly  thnn  wouM  1m,  yonnibh  for  «no  who 
]m[  to  (liviao  l.iH  till...  aiiioi.«  iiuuiy  ailV.^nM.t  kiiuU  ..f 

priMluclioii. 

(e)  DiviHioi.    of   Ifthnr   rimM.'«    imch    lK.n.on    to   do 
th.<    work    for   wl.i.h    Ik.   or   hI.',.  Ih  Ik^hI  litUul.     ThoiK. 
wlio  Imvo  Knnit  iiius.  ular  «tn'nuth  niul  tMHl.iniiu'o  can 
do  tlu,  kin.lH  of  work  ill  whi.li  Htn.i.Klh  am\  u.i.hirnnco 
are   noo«HHftry.    ThoH«  who   huv»  ,l«ft  \Uwn  and  deh- 
cate    tMto    can    dov..t«    thoni««Iv«H   to  ...unimtionH   m 
which  there  i'-  iici.<l  of  taHt«  lu.d  duinty  workumnHhip. 
Thus   <liviRion  of  hihor  tMiahlcH  all  th«   tah.ntH   of   tho 
aiminunity   to    Ik,   turiu.l   to   tho   In^Bt   ttc<.,iint.     Tho 
nmult    iH    to    incr...ttH«     production     un.l     imi.n.vo     itH 
quality,  >H.Hidc8  v^inmtm  i»  "'»'«'  ^''^  '•'"  ^""'^"''■ 
and   haitpinoBH  of   tho   producers. 

By  an  oxteiiHion  of  the  principle,  poplo  livinK  >" 
diflerent  pnrtfl  of  tho  country  are  enabled  to  make  full 
use  of  the  natural  advantages  whi.^h  their  nelKh- 
horhoed  poHsesses.  Thus  local  peculiarities  of  H...1 
climate.  wat«r-jK)wer.  mineral  resources,  etc..  hecome 
available    fdr   supplying  the  needs  of  the  i,eople  living 

in  other  places. 

(d)  Division  of  labor  makes  the  use  of  machinery 
possible.  No  man  would  build  a  cotton-mill  in  order 
to  make  cotton  cloth  for  his  own  family.  There  would 
be  no  saving  of  labor  in  doing  so.  When  the  mill 
can  bo  used  to  supply  a  whole  city  or  a  whole  country 
the  case  is   different.     It  then    becomes   the    means  of 


Vtti 


JMMMrm  <{/'  labar. 


ai 


ittnl  to  iiiaktt 
for  «»n«  who 
ont  kiiitU  of 

«!rfion    to    do 
ItUul.     Thorns 
ii(l\imiu'«  ran 
11(1  Miitliirnnco 
(I'tn  and  deli- 
[;('n]inti)iiiN   in 
workuuuiHliip. 
iiliints  of  tho 
,ct;ount.      Tho 
in»i>rovo    its 
I  thu  comfort 

iplo  living  in 
1  to  nmko  fnll 
their  neij^h- 
rities  of  soil 
,  etc.,  bec<>tno 
3  j)eoplo  livini5 

of   machinery 

n-mill  in  ordm 

There  would 

V^heii   the    mill 

whole  country 

the    means  of 


mvinn  'i  gfiat  d.'«I  of  lulnir;  or,  IwtUir,  of  uddinu 
Kr.'atly  to  thn  imnhK  tivontmii  of  Mm.  My  diviHJon 
of  cnipInyniontM.  and  th«  nin<hiniry  it  niaki-H  poNNihlii, 
uwn  ari!  iMialdod  to  \\w  thn  ft.rci's  of  natunt  with 
great  ell'i'ct,  nn  aidn  in  produrtion. 

(e)  I)ivinion  of  lahor  in  appU«>d  with  gmat  advan* 
ta^m  to  tho  din'on-nt  part«  or  ntnHflu  of  tho  pnMluotion 
of  thitigH  tliat  are  made  up  of  wivcral  diHi-n-nt  mat«<riaU, 
or  go  tlirr.iigh  ft  nnnihf'r  of  dill'iin-nt  prorf.ss«>«.  For  ex- 
ample, tak.)  the  proiUictioij  of  jH>nknivcs.  For  making 
llie  hhidt'M,  iron  ore  nuiHt  hi-  dug  from  the  mrth ;  th«'fi 
it  muHt  ho  Hmoltt'd  and  turnctl  into  Htetd ;  tiu-n  it  mu«t 
he  cut  up  and  beaten  into  the  reipiircd  hIiujh!h  ;  then 
each  piece  must  Iki  ground  and  |)oliHhed.  Kach  of  thewo 
oiHsmtions  iH  dintinct  from  the  rest,  requiring  (liHurent 
toolH,  a  difTerent  kind  of  nkill,  and  a  different  Hort  of 
place  for  carrying  it  on, 

Again,  tho  pnnhution  of  the  handles  in  an  entirely 
different  «ort  of  work  from  that  of  making  tho  hlades, 
and  iH  itself  Itroken  up  into  several  distinct  ojMirations. 
There  is,  therefore,  tho  same  reason  for  snhdivi(hng  the 
work  of  making  iHiiiknives  that  there  is  for  division  of 
lal»or  in  producing  different  commodities.  The  only 
difference  is  that  here  tlie  different  sets  of  lahorers 
co-oiHjrato  towards  tho  proihiction  of  a  single  com- 
modity. This  diffenjnce  has  led  some  to  distinguish 
this  sort  of  division  of  lahor  by  a  separr.to  name:  viz., 
Combination  of  Labor. 
Whatever  wo  call  it,  the  imiwrtant  thing  to  be  clear 


r 


I 


1^ 


22 


DiliUent    Keonimif. 


MtMiut  \*  tlitit  iIh»  |tnHlintl»>ii  nf  III!  i-impHcaUid  article* 
U  «r«  nily  .  Ii«'a|«>i».'.|.  lutil  tli"  .i»'»''*y  J"'"'»tly  liii|»r<'vi«|, 
Ity  tlivHliiiK  tilt'  w.»rk  of  iimUitM'  them  nriiujiK  n  luuiilMr 
of  ilill'tTi'iil  ni'lH  of  liilMinri 

ft.  MtocMlty  of  iMhwjf*.  Kii">ikI>  Ii"-*  '•«'"»  "«i«l.  '*' 
limy  Iki  lin|N'.l.  to  >«ll«^^t••^l  ili.-  yriMit  jmiwit  of  ilivinioii 
of  lii»M»r  to  III.  rtiiKr  tim  priHiiirtivriumii  <if  iiuhmlry. 
Hut  ohvimiHly  priKluilioii  of  tUitmn  hy  tlivi«loii  of  la»K.r 
huN  th«>  iiwkwnnl  runult  of  IfiivliiK  th.-iii  in  tlm  wroii^ 
liiiiiiU  wliijii  tlioy  iiro  JliiiHlu'd.  Nolunly  huH  tli.'  tliiiiKH 
he  nofljU;  iivurybotly  Iuin.  iiiHtfiul.  n  utt'ui  fUnk  of  ii 
ulnulo  nrliilo.  tii  onU-r  tliut  nil  |>vrHoii«  »«li«ll  K"'  ••*"' 
things  lln-y  lU'ftl  for  their  own  uim9,  a  niont  conipU- 
oat«t)  (M)t  of  uxcliBiiKcii  inuHt  tak«  plait-.  TImh  Ih  thn 
om-  norioim  «li»<a«lvnntngo  nf«livi»»ion  of  liilH.r:  it  iM  the 
price  wo  puy  f<»r  all  tlio  udvanta^^i'M. 

6.  lxoh»ng«  by  Barter.  lU  DlfBoulUM.  —  Now  it  is 
lit  h'aHl  idiuoivul.h!  that  th«  proilucwrH  ahoul.l  nie«t 
.w;h  othor  at  appoinU'tl  tiimm  and  placcH.  aii<l  ^xchanK" 
i>rfKluctii  one  with  another.  In  a  very  Hniall  coiiiiiiunity 
thiH  ini'0«t  IHirhapn  Ihj  d.-im.  Hut  ..lie  nuidily  h.-oh  that 
exchau^u  <a  prolucU  coiidiicti'd  on  that  plan  would  Iw 
very  li''""  •«  '  "f't  4  '''  ii»l'"w^t««a'^l«»  »»  "  ^'^'K" 
coiniminiiy. 

Two  v»(ry  unuit  .Umculties  would  Im  oncountt^rcd.     In 

the  first  pla.o,  the  man  wh<.  has  prmlucod.  we  will  nu\>- 

■  pose,  a  carriage,  aiul  wImIu-h  to  get  in  oxc»<anKe  for  it  .\ 

watch,  a  coat,  and  a  l.anvl  i.f  flour.  niUHt  find  a  man 

wlu)   not  only  wishes  to  get  a  carriage,  but  also  has  a 


%*. 


«»/  l^fiulud). 


nted  ttrticlnit 
lly  iinpri'vcil, 
iii^  It  iiiiiiilM>r 

In'iMI  miimI,  it 
•r  of  iliviftiitii 

iif  iitduNtry. 
iNiiiii  (if  littHtr 
in  thit  wrmiu 
UN  tli«  tltiiiKN 

it     NllM'k      of     II 

nIiiiII    ({t>t   till' 

tiiuHt  i'i)ni|)li- 

Thin   in  thfl 

iltor:  it  iit  the 

,  —  Now  it  U 
ahould  iiiuut 
(111(1  ('xrliHiiKu 
all  <-otiiiiiiitiity 
ailily  N(H!H  tliiit 
Itliiii  woultl  1mi 
Ic,   ill   u   lurgy 

icoiiriU^rod.  In 
(I,  w»i  will  HUp- 
(;!>an(^«  for  it  » 
iHt  find  u  »nft» 
but  uUo  has  a 


watch,  a  Htiit  nf  clot}i(«H,  ftinl  a  h&ttA  «»f  flsmr, -=!»!!  '>f 
tliti  kliitl  ili'xlrt'i!,  —  to  ylvn  III  i'\t|itiiiKn  for  It.  Hiii*!«, 
iiiitlcr  tliviMJoii  of  lultnr  tli«  iiiiiii  who  wiiihtm  iho  i'iir> 
x\\\\ff'i  Imim  |tri<Miiiiiul)ly  hut  mw  cotiiiiiiHlity  to  otfi'r  in 
tixuhiitiu**.  tititl  that  one  coiiiiiiinlit/  wutihl  rarnly  hii|)|M>ii 
to  bu  uiiii  of  thu  thiiigii  iimuti'il  hy  thu  curriiii^Kiiiiikt'r, 
wu  ruiiitily  mtii  how  iiwkwanl  tho  Nitimtion  would  Im. 

K»i<-huiiKM  hy  diii'it  hartrr  iM'twcou  |)r<Mlui'<T»»  woiiM 
iiiv-olvi*  NO  iiiiit'h  lioiilili'  and  HO  ^rt'ut  ri^kN  of  failuif, 
that  iho  wlioltt  ailvaiitagt)  uriNing  from  diviHioii  of  htltor 
might  Imi  lopil  tlit'nthy, 

7.  A  Ctntral  Exchange.  —  Tho  only  |)laii  hy  whii'li 
hartor  ooiild  In;  nuKht  poHiildo  in  pnu'tiiti  would  Ui  to 
liuvu  Hoino  vnry  wealthy  man  or  comiHiiiy  undi'itukt*  thu 
hiiNintmN  «if  making  thu  ttxcliangcN.  Th**  undertaking 
wouhl  1k)  a  viiNt  one.  A  Ht(K:k  wouhl  have  to  ho  kept  on 
imiid  of  all  thu  variouo  comnnHlitieN  that  [Msoplu  want, 
including  many  diirerunt  Horts  und  (lualitien  of  uaoh  com* 
modity ;  and  not  merely  a  fiinglu  HiM'cimen  of  each 
thing,  hut  HO  largo  a  Hupply  of  it  that  all  perMonn  in 
tho  community  could  get  uccunh  to  it  and  ohtain  thu 
duHireii  ((uaiilily. 

Tht!  univurHal  uxchange,  wu  may  aHnuino,  would  havu 
to  ho  about  as  largo  aa  all  thu  prununt  Hhop.-;  and  wnru< 
hoUNCH  put  toguthur.  Probably  thu  managuinent  of  so 
vast  a  businuMH  would  cxcucd  human  capacity.  To  Hay 
nothing  i»f  the  knowlcdgo  of  rill  articlcH  of  trado  that  tho 
buHJucHH  would  call  for,  tho  muro  Hi/u  of  thu  uHtabliHh- 
munt  and  thu  uxtunt  of  its  o|N!ratioiiH  would  n^ndur  thu 
8UiH.'rviHion  of  it  uxccudingly  dillicnlt  if  not  impoHHible. 


■PSS^ar" 


24 


Pnlitienl   Economy. 


8.  Difflcixlty  of  Excuange  without  a  Standard  of  Value.  — 

But  supponiiig  those  diHicultios  to  bo  overcoino,  thoro 
v.'ould  roniain,  in  t!io  second  place,  the  problem  of  find- 
ing some*  ready  wny  of  expressing  the  proportions  in 
which  things  should  exchange  for  each  other.  The  per- 
sons concerned  could  not  say,  as  we  do,  that  a  thing  is 
worth  so  many  dollars,  for  that  would  imply  the  use  of 
money,  which  they  are  supposed  not  to  have.  In  order 
to  express  the  value  of  each  article,  they  would  need  a 
list  stating  how  much  of  evoiy  other  aitielo  a  given 
quantity  of  it  would  oxchangci  for.  In  fact,  the  company 
would  need  two  such  lists  for  each  article,  one  for  nse 
in  buying  and  the  other  for  use  in  selUng  it;  for  they 
could  not  afl'ord  to  buy  and  sell  at  the  same  value. 

The  number  of  commodities  of  all  kinds  entering  into 
the  trade  of  a  civilized  community  being  so  great,  each 
list  would  be  extremely  long,  and  the  number  of  lists 
would  be  extremely  great.  There  would,  further,  be 
endloHj;  labor  in  correcting  them  from  day  to  day,  owing 
to  the  continual  changes  that  occur  in  the  market  value 
of  things.  A  single  change  in  any  article  would  involve 
a  correction  of  every  list 

Altogether,  then,  it  is  clear  that  exchange  of  products 
by  means  of  direct  barter  would  be  very  costly  and  labo- 
rious. The  institutions  for  making  exchanges  would 
necessarily  be  few  in  number,  so  that  most  producers 
would  have  to  travel  considerable  distances  in  order  to 
get  their  products  exchanged.  There  would  also  be  a 
danger  that  the  community  might  have  to  pay  very 
dearly  for  the  services  of  the  exchangers. 


%« 


I  of  Value.  — 

rcoiiio,  tlioro 
ilem  of  fiud- 
•oportions  in 
jr.  The  pet- 
it a  thing  is 
ly  the  use  of 
e.  In  order 
r'ould  need  a 
iclo  a  given 
the  company 
,  one  for  use 
it;  for  they 
me  value, 
entering  into 
3  great,  each 
nber  of  lists 
further,  be 
0  day,  owing 
market  value 
rould  involve 

B  of  products 
tly  and  labo- 
anges  would 
)st  producers 
}  in  order  to 
Id  also  be  a 
to  pay  very 


CHAPTER    III. 

THE    USE    OP    MONEY    AS    A    MEDIUM    OP    BXOHANOB.- 
NATURB    OP    BUYING    AND    SELLING. 

1.  Honey  facilitates  Exchange.  —  It  is  only  by  consid- 
ering the  difficulties  attending  the  use  of  barter  that 
one  can  get  clear  views  as  to  the  true  nature  and  use 
of  money.  The  great  and  true  service  rendered  by 
money  is,  that  it  makes  the  exchange  of  commodities 
easy. 

This  it  accomplishes  in  two  ways.  First,  by  breaking 
up  the  exchange  into  two  parts  o-:  stages.  It  substi- 
tutes two  comparatively  easy  exchanges  for  one  ex- 
ceedingly difficult  one.  The  man  who  wishes  to 
exchange  a  carriage  for  a  coat,  a  watch,  and  a  barrel 
of  flour,  first  sells  the  carriage  for  money,  and  then 
with  the  money  buys  the  things  he  wants  wherever 
ho  can  buy  them  most  favorably.  This  enables  the 
work  of  exchanging  things  to  go  on  without  the  help 
of  a  great  central  exchange. 

Secondly,  money  makes  exchange  easy  by  making  it 
possible  to  have  a  price  for  everything.  Instead  of 
cumbersome  lists,  showing  how  much  of  every  other 
article  a  thing  is  worth,  we  need  only  to  say  how 
much  money  it  is  worth.  Money  serves  as  a  standard 
of  value.  26 


15 


!  f 


Pnliticnl    Economy. 


2.  Exchange  is  obscured   by  the   Use  of  Money.  — In 

these  twd  ways  tlie  use  of  money  renders  the  work  of 
exchanging  commodities  comparatively  easy  and  expedi- 
tious. lUit  it  greatly  increases  the  ditticulty  (»f  study- 
ing political  economy.  The  use  of  money  gives  rise  to 
most  of  the  wrong  ideas  against  which  political  economy 
has  to  contend.  Exchange  of  commodities  is  very  much 
disguised  by  it,  — so  much  so,  in  fact,  that  many  men 
who  do  a  great  deal  of  exchanging  never  once  think  of 
it  as  exchanging  at  all.  They  think  of  selling  as  a 
thing  by  itself,  and  of  buying  as  a  thing  by  itself,— 
not  waiting  to  consider  that  these  are  in  reality  the 
separated  halves  of  an  exchange. 

Two  circumstances  tend  to  conceal  the  real  nature 
of  the  case.     In  the  first  place,  the  two  halves  of  the 
.exchange    are  transacted  with  different    peraons.    The 
man  to  whom,  in  our  example,  the  carriage  is  sold,  is 
not  the  man  from  whom  the  v.atch  or  the  coat  or  the 
barrel  of  Hour  is  bought;  so  that  the  transaction  lacks 
the  appearance  of  an  exchange.    Secondly,  the  two  parts 
of  the  exchange  may  be  separated  by  a  considerable 
interval  of  time.    It  may  suit  the  convenience  of  the 
carriage-builder  not  to  buy  the  watch  or  the  coat  or 
the  barrel  of  flour  at  once.    With  the  money  in  his 
pocket,  he  can  safely  wait.    He  may  in  the  meantime 
make  and  sell  another  carriage,  and  the  money  derived 
from  the   new  sale   may  get  mixed  up  with  the  other 
money,  so  that  when  he  buys  a  thing  he  could  not  easily 
tell  for  which  of  the  carriages  he  receives  it  in  exchange. 


r 


Money.  —  In 

the  work  of 
and  expedi- 
ty  of  stiuly- 
givc8  rise  to 
ical  oconoiuy 
is  very  much 
t  many  men 
nee  think  of 
selling  as  a 
by  itself, — 
J   reality  the 

real  nature 
lalves  of  the 
)eraon8.  The 
re  is  sold,  is 
i  coat  or  the 
isaction  lacks 
the  two  parts 
,  considerable 
nience  of  the 

the  coat  or 
money  in  his 
the  meantime 
iioney  derived 
ith  the  other 
luld  not  easily 
,  in  exchange. 


Ifow  Money  Ohacurea  Exchanges. 


27 


Thus  the  use  of  moiicy,  wliilo  making  excluingo 
easy,  has  made  it  complicated.  When  mon  sell  things, 
they  do  not  usually  think  of  the  particular  things  they 
are  to  buy  with  tlie  money  they  get.  They  may  not 
have  decided  yet.  Their  imiuodinto  object  is  to  get 
money.  They  know  that  to  him  who  has  this,  the 
whole  market  is  open. 

Money  has  been  very  fitly  called  "  general  purchasing 
power,"  because  it  can  be  so  readily  exchanged  for  any 
desired  commodity.  Until  the  actual  moment  of  pur- 
chase the  owner  of  money  is  free  to  choose  what  he 
will  have.  Yet  when  he  does  buy,  it  is  clear  that  he  Is 
simply  completing  the  exchange  that  was  begun  when 
.he  obtained  the  money.  The  money  served  as  a  pledge 
that  he  should  receive  an  equivalent  for  the  tu.'ng  sold, 
leaving  him  free  to  choose  the  time  and  the  form  in 
which  he  should  receive  it. 

Thus  the  use  of  money  enables  each  producer  to 
exchange  on  free  terms  with  the  general  body  of  other 
producers,  instead  of  being  limited  to  the  particular 
individual  who  buys  his  product  and  to  the  particular 
moment  at  which  he  buys  it.  These  facts  disguise 
the  exchange,  but  they  do  not  affect  its  real  character. 
In  the  end  each  producer  has  parted  with  certain 
things,  and  has  received  certain  other  things  in  return. 

3.  Baying  easier  than  Selling,  —  There  are  ,  some 
other  circumstancfts  that  tend  to  obscure  this  funda- 
mental relation  between  buying  and  selling.  In  the 
first   place  the  use  of  money  afl'ects  the  two  halves  of 


;"^ 


-Wrti'.awaiKW 


II 


28 


rblitir.al    EcoHomif. 


cxclmiiKo  very  uiuuiually.  As  thorc  are  always  stocks 
of  «(.()(ls  for  sale,  the  posHcssion  of  money  makes  it 
comparatively  easy  to  ^(it  what  we  want.  IJut  the 
difliculty  of  tiiuUug  the  persona  who  want  our  product 
remains  precisely  as  great  as  it  would  be  under  a 
system  of  barter.  Thus  the  chief  remaining  difliculty 
in    making   the   exchanges   is   thrown    ou   the   side   of 

sellir.g. 

There  is  usually  no  small  difficulty  in  getting  things 
sold   at  satisfactory  prices.     The   attention   of  business 
men,  producers  as  well  as  traders,  is   thus  ordinarily 
fixed  on  their  sales.     Every   other  part   of  their  busi- 
ness they  can   control,  but   for   their   sales   they   nmst 
await  the   pleasure  of  other  men.    This   is,  therefore^ 
the    part   that    causes   anxiety.      A    natural    result    of 
this  is  a  tendency   to   forget    the    other   part    of  the 
exchanges  they  are  carrying  on,  and  to  view  all  sorts 
of    industrial    activity    merely    as    so    many    different 
ways   of-  getting    money.      From   this    state   of    mind 
manifold  errors  spring. 

The  student  of  political  economy  has  made  his  first 
real  step  in  the  science,  when  he  has  perceived  clearly 
that  buying  and  selling  are  merely  the  easiest  way  of 
exchanging  products,  and  that,  though  buying  is  so 
much  easier  than  selling,  it  is  not  a  whit  less  im- 
portant. In  fact,  what  is  selling  for  one  man  is 
buying  for  another. 

4.  Function  of  Traders.  — It  may  occur  to  the  reader 
that  there  are  some  facts  of  daily  life  which  seem  to  con- 


I 


The  Tradiny  Clttsa. 


29 


iways  stocks 
jy  makes  it 
;.  Biit  tho 
our  product 
be  under  a 
iig  dirticulty 
the   side   of 

etting  tilings 
of  business 
us  ordinarily 
f  their  busi- 
s   they   must 

is,  therefore^ 
•al    result    of 

part  of  the 
iew  all  sorts 
fniy  different 
ate   of    mind 

nade  his  first 
ceived  clearly 
asiest  way  of 

buying  is  so 
kvhit  less    im- 

one    man    is 

to  the  reader 
h  seeni  to  con- 


Hict  with  this  view  of  buying  and  selling.  To  begin 
with,  there  is  tho  fact  that  merchants  and  traders 
constantly  buy  and  fell  ilie  same  thing.  "When  the 
cloth  merchant  1ms  sold  his  chtth  ho  diMjs  not  buy 
a  stock  of  other  commodities :  he  buys  more  cloth. 
In  this  sort  of  buying  and  selling  there  would  seem 
to  be  no  exclmngo  of  commodities.  IJut  we  must 
note  the  fact  that  mercliants  and  traders  buy  of  one 
set  of  njen  and  .sell  to  quite  a  ditt'erent  set.  As  a 
class,  th(!y  buy  of  those  who  produce  and  sell  to 
those  who  consume.  The  truth,  then,  is  that  they  are 
tho  men  who  nuxnage  the  exchange  of  products  for  uw. 

Money  allows  division  of  labor  to  be  used  in  ex- 
change as  well  as  in  production.  Instead  of  one  great 
central  jilace  of  general  exchange,  money  enables  us 
to  havr  many  small  establishments,  in  each  of  which 
some  part  of-  the  work  is  done.  Each  dealer  devotes 
himself  to  trading  in  some  one  commodity,  or  in  a 
limited  number  of  commodities.  His  buying  and 
selling  are  part  of  the  process  by  which  commodities 
find  their  way  from  the  farms,  mines,  factories,  and 
mills  where  they  are  produced,  to  the  hands  of  tho.se 
who  are  to  consume  them. 

Things  are  usually  bought  and  sold  at  least  three 
times  in  passing  from  the  producer  to  the  consumer, 
The  manufacturer  sells  to  the  wholesale  dealer,  the 
wholesale  dealer  to  the  shopkeeper,  and  the  shop- 
keeper to  the  consumer.  In  some  trades  there  are 
several  other  intermediate  changes  of  ownership. 


■J 
■3* 


:?o 


Ihlitirnl    Ki'ommy. 


ThuHO  transfers  from  dealor  f.  (l(uil«r  uro  for  con- 
vonienc.  uiul  ocouo.ny.  Thoy  Hiiui-lify  the  o|K.ratio..8 
of  t'ach  dealer,  and  are  conunercially  of  great  unpor- 
tancc.  llut  for  political  economy  tlusy  havcj  littlt- 
significance  beyond  tlieir  cflcct  in  lessening  the  lalx.r 
of  carrying  on  exchange.  In  all  rosreots  except  that 
of  economy  and  convenience  the  man  who  hnys  of 
the  producer  might  be  the  same  who  sella  to  the 
consumer.  These  are  the  essential  transactions  m 
economic  exchange ;  all  the  intern;ediat«  transfers  are 
merely  helps  towards  making  these  easy. 

5  Buying  and  Selling  do  not  create  Wealth.  — The 
gains  nuide  by  buying  and  selling  are  often  very  large, - 
so  large  that  many  tliink  of  buying  and  selhng  as  the 
true  source  of  wealth.  But  one  who  reflects  at  all 
readily  sees  that  mere  buying  and  selling  can  produce 
nothin".  Individuals  may  grow  rich  by  fortunate  opera- 
tions oi  that  kind;  but  the  whole  community  cannot 
do  80.  The  general  wealth  can  be  increased  only  by 
producing  more  or  by  saving  more. 

If  all  the  commodities  in  the  world  were  bought  and 
sold  fifty  times  in  a  day.  with  a  rise  of  price  at  each 
new  sale,  the  world  would  be  no  richer  at  the  end  of 
the  day  tlian  it  was  at  the  beginning.  Some  mdi- 
viduals  might  no  doubt  be  richer;  but  others  would 
be  poorer  by  the  same  amount. 

6  Speculative  Buying  and  SeUing.-  Every  change  m 
the  price  of  an  article  usually  brings  gain  or  loss  to 
those  who  happen  to  have  stocks  of  it  on  hand.     Such 


AaiaiM'*!"*'*' 


Sprenfutora. 


SI 


iro  for  con- 
3  oiKTutions 
^rciit   iiiipor- 

Imvtj  little 
^   the    lalxT 

i',xccl>t  that 
ho  Ituys  of 
sella  to  the 
iisiictiotis  ill 
transfers  are 

realth.  — The 
very  large, — 
lelling  as  the 
iHects  at  all 
can  produce 
■tunate  opera- 
lUnity  cannot 
ased  only  by 

e  bought  and 
price  at  each 
it  the  end  of 
Some  indi- 
others   would 

ery  change  in 
An  or  loss  to 
I  hand.    Such 


clmtigcs  niv  an  unavoidable  (.vil.  They  disturb  the 
course  of  trade  and  production.  The  opportunities  tlu^y 
pfjseiit  for  making  large  and  siiddcii  gains  give  rise, 
in  every  community,  to  a  class  of  men  called  specu- 
lators. 

Sjieculators  pcu-form  no  necessary  ])art  of  the  work 
of  exchange.  They  carry  things  no  sti-p  forward  from 
the  jtrodiicer  to  the  consumer.  Tliey  merely  aim  to 
profit  by  the  fluctuations  of  the  market.  My  buying 
things  that  are  about  to  ri.se  in  i)rice,  and  selling 
again  after  the  rise,  they  are  able  to  gain  the  diflur- 
ence.  If  prices  were  steady,  tliey  would  have  no  basis 
for  tluiir  ojMirations. 

So  far  ns  speculators  merely  anticipote  tlie  natural 
course  of  the  market,  their  oiKTutions  are  entirely  legit- 
imate, and  even  at  times  benelicial  to  the  community. 
15y  buying  in  sea-sons  of  plenty  and  carrying  over  a 
stock  that  might  otherwise  be  partly  waited,  they  some- 
times help  out  the  deficitfncy  in  8ea.sons  of  dearth.  JJut 
when,  for  purposes  of  gain,  they  impose  on  the  igno- 
rance or  timidity  of  their  neighbors,  when  they  resort 
to  knavery  and  deception,  —  when,  by  combinations 
and  "ct.rners,"  they  create  artificial  fluctuations  of  the 
market,  —  they  become  enemies  of  honest  industry  and 
a  burden  to  the  community. 

7.  Some  appear  only  as  Bayers.  —  There  is  anpther 
circumstance  which  seems  to  conflict  with  the  view  that 
buying  and  soiling  are  at  bottom  exchange  of  commodi- 
ties.    Many  persons  appear  only  as  buyers.     They  have 


ft 


I 


?^SS2S^5^SSSS?!SB!??r'!S55"5TyS^ 


^mrr 


■MMM 


82 


Jblitieal   Jietmomjf. 


nothing  to  ««11,  tor  they  produco  nothing.  Tho  hirgo 
clftHH  who  live  in  iiUoni'HH  nio  in  tliis  position.  AIho  tho 
more  nunicrous  clnsH  who,  tliough  doing  U8«ful  Hcrvico 
in  othor  ways,  tako  no  jwirt  in  tho  pro(hi<;tion  of  coin- 
inodititm.  Evon  lh«t  hinMl  hihon-rs,  who  <lo  tho  chief 
work  of  produt'tion,  apiKJiir  in  tho  markot  as  hnyers 
only.  How,  then,  hIipU  we  nmintftin  tho  doctrine  thut 
buying  and  Holliiig  aro  mainly  oxchanging  of  thingB? 

As  it  is  of  tho  highcHt  iinp<irtan(«  tliat  tho  hoginnor 
Hhould  lie  (juito  clear  on  this  point,  let  uh  ronsidtir  thoHo 
cam-H.  First  tho  caao  of  the  idk-rs.  It  is  ohviuuH  that 
these,  in  order  to  Iks  able  to  buy  anything,  must  have 
an  income  from  some  source.  Some  of  them  own 
estates  of  land  and  receive  rents  from  their  tenants; 
others  own  buildings  or  buihling-lots  in  tho  cities; 
still  others  hold  bonds,  mortgages,  railway  stocks,  etc. 
Tiieir  inconio  from  these  sources  is  now  commonly 
paid  in  money.     But  this  is  mere'i^  "  -^onvenionce 

of   all   concerned.     If    there   were  ty  in    tho 

world,  there  would  still  be  farms  and  -,  -^nd  tho 

various  other  forms  of  property  name. .  I'ho  rents, 
however,  would  have  to  be  paid  in  commodities:  so 
many  bushels  of  wheat,  so  many  tons  of  coal,  so  many 
yards  of  cloth. 

In  some  countries  rent  of  land  is  actually  paid  in 
products  of  the  land  itself.  If  all  rents,  dividends,  and 
interest  were  paid  in  commodities,  the  objection  we 
are  considering  would  not  be  thought  of.  The  persons 
receiving  income   from  such  sources  would  receive  it 


fiuffing  in   K.irhiinffiinf. 


33 


Th»)  liirgo 

AIhu  tht) 

>Ui\  Hcrvico 

oil  of  <;oiii' 

>  thu  chiof 

na  buyers 
)ctri!iu  tliut 
f  tliitigH? 
Iio  biii^iiitior 
isidt^r  tliMHo 
bviuiiH  tliat 

iiiuHt  have 

tliuiii    own 

sir  tonniitH; 

tlio  citicH; 
stocks,  etc. 

cuiniiioiily 
"onvenimice 

.V   in    tho 
'\nd  the 

The  rents, 
iiodities :  so 
>al,  80  many 

ally  paid  in 
vidends,  and 
)bjection  we 
The  persons 
d  receive   it 


uithiT  in  tho  pruciHo  (X)iiiiiioiliti(M  thi<y  ha]i|M<ii«>il  to 
nood  for  thoir  own  uh.-,  or  in  otht-r  thiiiKH.  If 
tlioy  received  thu  thinK«  needed  for  their  own  uno, 
tliey  would  not  np|M«ar  in  the  inarkot  at  all  :  they 
would  lie  neither  buyern  nor  Helli-rH.  If,  on  the 
other  hand,  they  received  thinjja  niiHuitahle  for  their 
own  use,  they  would  apix'ar  in  tho  market  both  as 
Hollers  and  as  buyers.  It  would  then  be  dear  that 
their  purchases  are  in  fact  part  and  parcel  of  the 
general  exchange  of  commodities. 

At  present  the  troublusoiiio  half  (»f  their  exchange 
is  done  for  these  persons  by  those  who  pay  them 
rents,  interest,  or  dividends.  Others  are  compelled 
to  sell  more  than  they  buy  by  the  full  amount  of 
tho  money  paid  to  the  receivers  of  rent,  interest, 
and  dividends.  If  those  others  were  allowed  to 
spend  tho  money  for  themselves,  their  buying  would 
simply  be  equal  to  their  selling,  and  there  would 
bo  no  difficulty  in  perceiving  the  reality  of  tho 
exchange.  That  they  hand  over  a  part  of  their 
buying  power  to  their  landlords  and  creditors  does 
not  change  the  essentiol  feature?  of  tho  case.  Their 
landlords  and  creditors  simply  complete  exchanges 
whereof  the  difficult  half  has  been  done  already. 

The  same  remarks  apply  to  all  payments  of  money 
in  the  form  of  tees,  salaries,  and  wages.  Men 
nominally  work  for  money,  but  in  reality  they 
work  for  commodities.  By  getting  paid  in  money, 
they  really  get  the  commodities,   without  any    danger 


I 


liji      III!  II 


t4 


iUiUmt   Heonomif. 


of  (liNpiiUm  uImuu  quftlity  or  kind,  aii<l  willmut  thu 
tnuiltlu  And  rUkH  atUniding  thu  difllculi  liuK  u(  ox* 
chango, 

If  I'ttch  lulxtn-r  worn  |»oid  in  th«  pntdurt  of  hin 
«twn  lalior,  li«  would  run  Knuit  risks  of  1oh«  and 
HuflVriiiK  in  tlm  i^flort  in  mdl  it.  Tlio  nrmnKunmnt 
wlusndty  laltnnTH  n'ct'ivo  nioni-y  f«>r  their  liilnir  fruen 
thoni  from  nil  that  tnuiJilo  nud  riHk.  Tho  cniphtyor 
d<H3M  tho  mdUn^  for  th»'ni.  Hi«  purthiutm  of  com- 
nioditi^H  full  nhort  of  hin  mih-H  hy  thu  whole  ninonnt 
of  tliH  lalMmTH*  imrchuHtiH.  Thoir  Imyinn  Hiniply 
coinplt^teH  tho  I'xchnii^o  thiit  hid  Htdliiig  hoKinn. 

8.  Money  and  PrioM.  —  Since  tho  tiniil  ohjcct  of 
all  our  industrial  cxertiunH  iH  to  ohtnin  cnjoynhlo 
conunoditios  or  Hervicos,  it  followH  tlmt  tho  amount 
of  money  we  nicoivo  docH  not,  of  it«elf,  di'tt'rmino 
our  rowftrd.  In  order  to  know  how  much  wo  aro 
receiving  for  our  lidwrs,  wo  must  alflo  know  tho 
prices  of  the  things  we  wish  to  huy  with  tho 
money.  If  tho  prices  be  fixed,  any  increai';  o(  our 
money  income  means  a  cornssponding  increase  of 
our  real  rewards.  Similarly  if  our  money  incomes 
be  fixed,  a  fall  in  tho  prices  of  tho  things  wo  buy 
means  a  corresponding  increase  of  our  real  rewanls. 
But  an  increase  of  our  money  income,  accompanied 
by  an  ("jual  rise  in  tho  prices  of  the  things  we 
buy,  would  leave  us  no  better  off  than  before. 

These  are  important  principles  and  need  to  be 
steadily   borne  in   mind.     Many   speak  and    act  as  if 


r 


Oiir  MiiHfff  not  our  tUg. 


85 


williotit    tliu 
,   half    u(    ox- 

in)tlui!t   of  hi« 

of     loHM     nittl 

)  armiiKutiiont 
air  liilNir  frees 
The  ciiiplityor 
lilies  uf  com- 
whole  ninount 
xiying  Ntinply 
l»'KinH. 

iiml  object  of 
tain  ('iijoynblo 
:,  the  aiiiouiit 
nelf,  (lotenninn 
much  wo  are 
Iflo  know  the 
)uy  with  the 
iicreati;  of  our 
g  increase  of 
loney  incomes 
things  wo  buy 
real  rewanls. 
!,  accompanied 
the  things  wo 
before. 

1     need    to    be 
and    act  as  if 


more    inrn-itHo     of    money     wer...    in    m,.l    „f   jt«oIf,  , 
general    bl.HMing.     Hut     to    one     who    relLctn    at     all, 

it    must   be   ili'iir   that     what    we    n I    in    onl.-r    to 

have   un    increaMi   of    the  general    wealth    in   not  more 
money,    but    mom    eommiNlitien.       If    every    iHtnton's 

"' y    income    were    doub|.>d,    without    any    im-reaHed 

production   of  commoditioB,   nobody    would    Iki    better 
oil'  than  before. 

QOBiTioirs  AMD  nxxaoitis, 

1.   Dowrlho  th«  a<lvniil«K<<N  i^rWuig  from  liivJNinn  of  Intw. 

a.  Hhow  tliat  III.,  troul.l.t  of  ..xcliaiigluK  producU  U  a  uinad. 
vantaitu  ktt«ii(liii({  diviNioii  uf  labor. 

U.   Could  nxohiiiig..  Im.  ciirriiKl  on  l.y  barter? 

4.   Show  how  tho  UMo  of  nioiicy  fuoilitnt.H  i-xchaiiRo. 

B.  Ilow  <io«H  tho  uHu  of  money  dJHguUo  tho  exchange  of 
product)!  ? 

fl.   Why  if)  It  UHually  no  much  hanl.T  to  hi>)I  than  to  buy? 

7.  Trace  carefully  the  flxchaiigM  of  pr..diu;lH  in  tho  followinR 
caiws : 

(.1)  A  farmnr  recHves  |2fl  for  wh.-at,  um...  $'20  „f  the  amount  to 
pay  hin  debt  to  the  cool-dealer,  and  with  tho  l.iilance  buy«  a  do/on 
of  apooim. 

(6)  Tho  coal -dealer  pays  tho  fJO  to  hin  bookkeeiH,r,  who  buys 
with  it  a  suit  of  clothes  from  tho  tailor. 

(c)  Tho  tailor  uses  the  mt)n('y  to  pay  his  house  rent,  and  the 
owner  of  tho  house  buys  a  watch  with  it. 

8.  A  teacher  receives  her  salary  from  tho  town  treasury  and 
spends  half  of  it  in  luiying  bw^ks  and  <leiH)sits  tho  balance  in  a 
savings  bank.  [Consider  tho  Ux-payers  oa  well  as  tin  teacher 
and  the  book-fleUer8.J 


I 


Tsiiumwi' 


CIIAITKU  IV. 


or  WBALTM  AND  TUB  DIBTINOTION  DBTWREN   NATURAL 
WBALTtI  AND  WBALTM  PRODUOIC  MY   LABOR. 

1.  Wealth  oontiiUof  MatorUl  ObjeoU.  —  It  Iium  Ih<iiii 
■taUul  thiit  tho  wctrtl  *  wurtllh  "  U  Hiiiiply  ii  Mliort 
naiix*  fur  th»i  munb<*rloH'i  things  wu  nil  liko  tu  liuvn 
antl  to  own.  It  i»  now  nuooHwiry  to  dollno  wcnlth 
BouH'whiit  mom  fully,  In  c>rcl«r  tluit  tli«ru  nmy  Imi 
no  nuHundnrHtttndiny  uh  to  thu  nuturo  ond  oxt«ut  of 
our  Bubject. 

Tho  flntt  point  to  bo  noted  i«  thnt  tho  wealth 
of  which  iK)liti(ftl  ooonnmy  tnmtH  i«  nmtiirial  woulth. 
Tho  things  conipriwd  in  it  arc  niiitorial  olijt'ct«.  Our 
inviHiliK)  jK)Hm!8HionH,  our  powurs  of  body  and  mind, 
«v«n  thoHo  of  tho  in  that  como  into  play  in  gutting 
nuitorial  wealth,  are  not  thtMnHolvcH  iucludod  in  tho 
doflnition  of  our  wealth,  ninco  thoy  nro  mthor  part  of 
ourHolvoB  than  of  our  worldly  goods.  Tho  wealth  we 
speak  of  in  political  ooonc.iy  is  hucIi  as  ono  may 
part  with  ut  will,  Therefore  wo  exclude  our  i»ersonal 
gifts  and  attainments,  such  as  knowledge,  intelligence, 
skill,  good  health,  phycical  strength,  social  position, 
a  gootl  name,  the  love  of  friends,  and  the  liko. 
This  implies  no  contempt  for  these  unseen  possessions, 


H'Jt.it  nur    nV.i/M   /n^lu,U 


MATIIRAL 
IT  LABOR. 

,— It  hiiH  iMon 
iiii|)Iy  a  Hhort 
II    liki*  to   Imvo 

tlitliiin  Wfultli 
tlioro    iiiny    Ixi 

mill   uxtuiit  of 

nt  thn  wonltli 
intoriiil  wotilth. 
1  olijocUi.  Our 
)dy  niul  mind, 
)liiy  in  gotting 
iichulud  in  tho 
mther  part  of 
Tho  wealth  we 
I  iiH  onu  may 
[o  our  praonal 
je,  intclligonce, 
social  {position, 
and  the  like, 
een  possessions, 
au 


whi.h  are,  in  fa.t.  f.ir  n.or..  im|K.rtant  iiml  pnic-luut 
than  n,.,r,.  n.ui.r.al  w.-ulth  W.,  only  moan  that 
|H.liii.:al  moMomy  d.H.«  not  undi.rtakn  t„  d.mj  with 
thoiM.     Itwi.  ly  ...MiHn..,  it«..|f  tn  th«  lMunh|..r   tank  „l 

con.id.<rin«  th.«.i  nmU-rial    thingn    that    uwu    t d    for 

Iha  snpiKirt  of  life,  or  dcsiro  a«  aids  to  cumfortabi* 
living. 

«.  TTNleu  Things  art  not  Wwlth.  W.alth.  then. 
w»u«iNt«  of  n,ut.(iial  nhj«,.t«  i  hut  lu.t  all  nmt..rial  ohj..cl« 
ar.1  wimlth,  ThiiiK.  that  havo  no  known  un.>  for  um, 
thingH  that  iiohndy  wunt«.  ar«  not  w.-alth.  This 
principle  ..xclud.n  from  woulth  a  large  part  ..f  the 
mati^rial  ohj,.ct«  in  tho  worl.l.  It  uppli,.,  „„t  only  to 
us«l«Ms  things  found  in  naturu,  such  as  d.-Hort  laiuU, 
usoloss  rwks.  w.H<dH,  noxious  animals,  etc.,  hut  hIho  to 
pnuluctM  of  lol)or  that  am  worn  out  or  havo  proved  to 

bu    UMtdoHH. 

Ot  courso  a  thing  may  havo  usflful  proportles  not 
yot  disoovonul.  T<»  ii.on  who  aro  ign.)rant  of  tho 
good  in  it,  it  is  not  wealth.  Thus  wealth  do|K.ndH  on 
kiif.wlodgo.  Tho  nu'talli.;  ores  wore  not  wealth  till 
t'mi  loarn.'d  to  Hin.dt  and  forgo  thorn.  Linon  rags 
were  not  wealth  t..i  mon    learne.l  tho   art  of    making 

them    into    pni^r.       Wo   cannot   Udl    how    many   sub- 

HtancoH  tR>w  regarded  as  uhoIosh   rubbi.sh    may    liecomo. 

through    MOW    discoveries,     valuable    portions     of    the 

world's   wealth.* 

>  Tlie    wonl.    useful    and    uaeless,  m    hen    employed,  have  no 
uecesMry  wferonco  u,  any  real  or  IntrinHio  nm>tn\»mn      A  Uilng 


I 


r 


88 


l\)lUical    Economy. 


It  may  b«  well  to  add  that  wealth  iinpl»^8  posses- 
Bion,  or  the  ability  on  the  part  of  somebody  to  have 
the  use  of  it.  Therefore  things  that  are  beyond  our 
reach  are  not  wealth.  Mineral  bods  that  lie  too  deep 
to  bo  dug  up,  treasures  at  the  bottom  of  the  sen,  game 
that  is  too  wary  to  be  caught,  are  examples.  Here 
again  new  discoveries  and  inventions  may  bring  within 
our  reach  things  that  have  hitherto  been  of  no  use  to 
us  because  unknown,  or  regarded  as  inaccessible. 

Our  wealth,  then,  consists  of  all  the  useful  and 
igreeable  material  objects  we  own,  or  have  the  right 
to  use  and  enjoy  without   asking   the   consent   of  any 

other  person. 

3.    Right!  over  Human  Beings  are  not  Wealth.— We 
have  seen  that  a  man's  powers  of  body  and   mind   are 
not  included  in  his   wealth.    Much   less  can   they,  in 
any  case,  be  regarded  as  the  wealth  of  another.    Men, 
ihe     owners    of    wealth,    can     never     themselves     be 
regarded    as   mere    wealth,   even   when   reduced   to   a 
state   of    slavery.      To    the     slave-owner,    indeed,    the 
possession  of   slaves    may  be   a   source   of   income;    it 
may  suit  him  in  his  pride  of  mastery  over  his  fellow- 
men  to  regard  them  as  his   property.    But  to  adopt 
that  view   would   be   to   forget  the   poor    slaves,    who 
are    members    of    the    community,   with    as    good    a 
claim  to  be  considered  as   the  master  has.     All  that 
is  useful,  in  the  sense  here  intended,  if  it  is  an  object  of  desire 
to  any  portion  of  the  human  race.     It  may  be  in  .Uelf  s^ictly 
worthless,  or  even    injurious  to  those  who   use  it:  the    fact  Umt 
men  desire  to  have  It  makes  it  a  part  of  wealth. 


Rights  over  Men  not   Wealth. 


39 


iipliea  posses- 
body  to  have 
e  beyond  our 
t  lie  t(»o  deep 

the  sen,  f,'ttiiie 
iiuple8.  Here 
^  bring  within 

of  no  use   to 
cessible. 
10    useful   and 
nve   the   right 
jnsent   of  any 

Wealth.  — We 
and  mind  are 
3  can  they,  in 
another.  Men, 
themselves     be 

reduced  to  a 
r,  indeed,  the 
of  income ;  it 
)ver  his  fellow- 

But  to  adopt 
)r  slaves,  who 
;h    as    good    a 

has.     All  that 

an  object  of  deflire 
le  in  itself  strictly 
it:  tlie   fact  tliat 
ilth. 


the  master  gains  by  the  existence  of  slavery  they 
lose.  If  he  is  richer  by  reason  of  his  power  to  exact 
their  service,  they  are  poorer  to  the  same  extent  by 
the  loss  of  their  freedom  and  the  products  of  their 
labor.  Therefore,  in  any  country  where  slavery  exists, 
the  wealth  of  the  community  as  a  whole  would  not  be 
lessened  by  freeing  the  slaves;  nor,  in  free  countries, 
would  it  be  increased  by  making  one  part  of  the 
population  slaves' of  the  other  part. 

The  same  principle  applies  to  all  other  claims  and 
rights  of  one  man  over  the  person  or  the  property 
of  other  men.  Debts  of  all  kinds,  as  well  as  all 
mere  proofs  of  debt,  such  as  notes,  bonds,  mortgages, 
etc.,  must  be  excluded  from  our  idea  of  wealth. 
They  merely  show  to  whom  the  wealth  belongs,  or 
will  belong  when  the  debts  are  paid.  If  every  debt 
were  forgiven,  and  every  bond,  note,  and  mortgage 
were  cancelled,  we  should  still  have  precisely  as 
much  weplth  in  the  country  as  we  had  before.  We 
create  no  riches  by  getting  into  debt  or  by  writing 
mortgages  on  our  property. 

4.  Natural  Wealth  and  Wealth  produced  by  labor. — 
The  wealth  of  the  people  of  the  United  States  is 
of  two  general  kinds.  Partly  it  consists  of  what 
remains  of  the  natural  resources  that  originally 
fitted  our  country  to  be  the  home  of  a  civilized 
nation.  This  part,  which  we  may  call  our  Natural 
Wealth,  our  forefathers  acquired  for  themselves  and  us 
simply  by  coming  over  the  sea  and  taking  possession; 


SiSSPff.'^ 


40 


Political   Economy. 


« 

it  cost  no  labor  beyond  tho  trouble  of  taking  and 
holding  it  The  other  part  of  our  wealth  consists  of 
products  of  human  industry,  —  things  for  which,  or 
upon  which,  labor  in  son»e  form  has  been  expended. 
This  part  we  may  call  Wealth  produced  by  I^bor. 

Natural  wealth  includes  the  land,  with  its  sponta- 
neous growth  of  forest-trees,  etc.,  its  bearing  capacity 
under  tillage,  and  its  varied  uses  as  our  home;  also 
all  such  things  as  deposits  of  coal,  iron,  and  other 
useful  metals  and  minerals;  water  and  water-power; 
electricity;  the  expansive  force  of  steam,  and  all  other 
physical  forces ;  harbors  and  navigable  rivers ;  fisheries, 
wild  game  and  the  like  ;  a  pleasant  and  healthful  cli- 
mate ;  a  favorable  position  for  commerce ;  —  in  a  word 
every  resource  and  advantage  of  a  material  kind  be- 
stowed on  men  bj  the  beneficence  of  the  Creator. 
We  must  also  include  in  natural  wealth  some  things 
that  ordinarily  come  to  us  so  freely,  without  care  or 
effort  on  our  part,  that  we  rarely  give  them  even  a 
thought.  It  may  seem  strange,  at  first,  to  give  the 
name  of  wealth  to  air,  water,  and  sunlight;  but  they 
are  surely  among  the  most  important  things  in  the 
world,  as  anybody  quickly  discovers  who  is  cut  off 
from  adequate  supplies  of  them.  That  they  come  to 
us  so  easily  would  be  a  poor  reason  for  excluding 
them  from  the  list  of  things  constituting  our  natural 
wealth. 

The  modes  in  which  natural  wealth  is  useful    are 
highly  varied;  it  would   be  difficult    to    mention    all 


t  taking  and 
h  consists  of 
for  which,  or 
len  expended, 
by  I^bor. 
h  its  spontn- 
iring  capacity 
r  home ;  also 
n,    and    other 

water-power; 

and  all  other 

I'ers ;  fisheries, 

healthful  cli- 

;  —  in  a  word 

erial  kuid  be- 

the    Creator. 

some  tilings 
thout  care  or 
them   even   a 

to  give  the 
ght;  but  they 
things  in  the 
10  is  cut  off 
they  come  to 
for  excluding 
g  our  natural 

is  useful    are 
mention    all 


of  them.     Some   things   are  directly   useful  to  us  just 
as  we  find   them  and   where   we  find  them ;  e.  g.  air, 
sunlight,  and  (merely  as  a  lo(lging-plac<')  land.     Other 
tilings   are   made   useful   by    merely   bringing   them   to 
the    jilace    where   we    need    tlieni;   for    example,  coal 
and    other    fuel,   mineral    oil,  game,   fish,   etc.      Other 
things    serve    mainly  as  materials   for  the  production 
of     useful     commodities;    e.    g.    metallic     ores,    wool, 
cotton,   silk;   skins   of  animals,  woods  other  than  fuel, 
marble,   etc.     Still   other  parts   of    natural   wealth  are 
useful   chiefly   as    necessary   agents   in   the    production 
of  commodities  or  materials,  or  as  aids   in  producing 
and   transporting  commodities   and   materials  from  one 
place   to  another;  e.  g.   the   soil,  the   motive   power  of 
wind,   water,    and    steam,    and    the    various    physical 
forces    that   come   into   play   in   the  growth   of   plants 
and  animals. 

Wealth  produced  by  labor  includes  all  useful 
things  that  have  been  prepared  for  use  by  exertion 
of  any  kind  on  the  part  of  men;  for  example, 
houses,  furniture,  pictures,  food,  clothing,  horses,  and 
other  domestic  animals,  machinery,  ships,  railways, 
money,  etc. 

Land  in  its  wild  state,  fishes  in  the  sea,  coal  in 
the  seam,  trees  in  the  forest,  belong  to  natural 
wealth.  Cultivated  farms,  fish  that  has  been  caught, 
coal  that  has  been  mined,  lumber  that  has  been  cut, 
belong  to  wealth  produced  by  labor. 
5.    The    Nature    of    Production.  — Obviously    natural 


fiammm- 


r 


42 


Jhlitical    Ecoivomy. 


wualth  is  the  basis  or  source  of  all  wealth  proilucod 
l)y  labor.  Men  create  nothing.  They  cun  only  make 
use  of  the  materials,  forces,  and  opportunities  they 
lliul  in  the  world  about  them.  Strictly,  what  we  call 
Prodi.,  ion  consists,  so  far  as  men  are  concerned,  in 
moving  things  or  parts  of  things  from  one  place  or 
position  to  another,  l.'onsider  carefully,  for  example, 
what  men  do  in  building  a  house,  or  h»  making 
clothes,  OT  in  procuring  food,  and  you  will  perceive 
that  it  is  confined  to  moving  things,  or  placing 
things  in  particular  ways.  Tiie  so-called  forces  of 
nature  do  the  rest.  Men  plough  the  groiind,  sow  the 
seed,  and  harvest  the  crop,  but  without  the  germi- 
nating principle  in  the  seed  itself,  and  the  nourishing 
influences  of  sun,  rain,  and  soil,  the  united  labors 
of  the  whole  human  race  could  not  avail  to  pro- 
duce a  grain  of  wheat. 

In  some  cases  the  work  of  production  consists 
more  obviously  of  moving  things  than  in  other  cases. 
In  the  production  of  beef,  for  example,  it  is  only  by 
an  effort  of  thought  that  we  perceive  the  exact  nature 
of  men's  contribution  to  the  product.  But  in  the  case 
of  producing  coal,  lumber,  fish,  ice,  and  the  like,  we 
perceive  it  very  readily.  The  reason  is  that  in  the 
latter  ca.se  nature's  work  is,  so  to  say,  completed 
before  man's  part  begins;  whereas  in  the  other  case 
man's  work  and  nature's  work  go  on  simultaneously, 
and  men  easily  take  credit  to  themselves  'or  more 
than  they  actually  accomplish. 


;h  producod 

only  make 
iiities  they 
hat  wo  (tall 
nicerned,  in 
no  place  or 
)r    lixainplo, 

in  making 
ill    perceive 

or  placing 
il  forces  of 
md,  sow  the 

the  germi- 
B  nourishing 
lited  labors 
ail  to  pro- 
ion  consists 
other  cases, 

is  only  by 
exact  nature 
I  in  the  case 
,he  like,  we 
that  in  the 
,  completed 
3  other  case 
iiultaneously, 
es    ""or    more 


CHAPTER  V. 

WHY   NATURAL   WEALTH,  ORIGINALLY  A  OIPT  TO  MEN. 
CANNOT   ALWAYS   BE   OBTAINED   FREE   OP   COST. 

1.  The  Supply  of  Natural  Wealth.  — Different  kinds 
of  natural  wealth  ditt(!r  very  much  in  point  of 
copiousness  of  supply.  Some  forms  (jf  it  are  found 
in  practically  unlimited  quantity  in  every  part  of 
the  habitable  globe  :  the  air  is  an  example  of  this. 
Other  kinds  are  found  in  abundance  in  particular 
neighborhoods,  while  in  other  places  little  or  none 
is  found :  coal,  petroleum,  and  most  of  the  metals  are 
examples ;  also  the  distinctive  natural  products  of  par- 
ticular zones  of  the  world.  Still  other  kinds  of  natu- 
ral wealth  are  found  in  but  few  places  and  in  but 
small  quantities :  of  these  gold  and  silver,  diamonds 
and  other  precious  stones  are  examples. 

Again  it  usually  hapi)ens  that  not  all  portions  of 
the  supply  in  any  given  region  are  equally  desirable. 
In  sonje  casef^  the  diflerences  relate  to  quality,  in 
other  cases  to  ease  of  access  or  convenience  in  use ; 
in  still  other  cases  some  jiortions  of  the  supply 
combine  several  kinds  of  suiieriority  over  other  por- 
tions. There  is  usually,  therefore,  a  descending  scale  of 
excellence  from  the  best  to  the  poorest  in  the  case    of 

4:) 


'A 


l\)litienl    Economy. 


each  <«iMJcio«  of  nmtoruil  woftlth  in  niiy  given  rogion. 
Further,  tlio  best  niul  really  depirnblo  portions  are  in 
inoHt  caflss  very  liniiled  in  Hiipply  ns  coinpured  with 
the  l(!H.s  (leainiMo  portions. 

Thciso  fivets  nro  most  clearly  scon  in  the  case  of 
\i\w\,  one  of  tho  iM(>st  important  parts  of  natural 
wealth.  Tho  whole  area  of  land  in  tho  world  is  very 
great,  but  different  portions  of  it  differ  tery  inueh  in 
point  of  fertility,  convenience  of  situation,  nearness  to 
tho  great  centres  of  poimlation,  etc.  Further,  tho 
amount  of  really  excellent  land,  excellent  in  all 
resiiects,  is  very  limited  in  comparison  with  tho 
amount  of  indifferent  and  distinctly  poor  land.  Be- 
tween the  two  extremes,  the  best  and  tho  utterly 
useless,  there  is  an  infmito  variety  in  lands,  one 
piece  diffcning  from  another  by  a  very  slight  balance 
of  advantages. 

2.  The  Demand  for  Natural  Wealth.  —  Tho  demand 
for  natural  wealth  in  any  region  depends  partly  on 
the  number  and  partly  on  tho  character  of  its 
inhabitants.  The  demands  of  a  civilized  people  are 
very  different  from  those  of  a  savage  one.  In  one 
sense  at  least  the  savage  has  a  larger  demand  for 
natural  wealth  than  tho  civilized  man.  He  must 
have  a  wide  range  of  territory  for  his  hunting  and 
other  crude  pursuits,  otherwise  he  cannot  find  a 
subsistence.  His  demand  is,  so  to  say,  a  wasteful 
one:  he  must  have  much  more  natural  wealth  than 
he  uses.  He  remains  poor  and  squalid  in  the  midst 
of  overflowing  natural  wealth. 


veil  region. 
m\n  are  in 
[Hired    with 

ho  cftso  of 
of  imturiil 
rid  is  very 
'  iiuioh  ill 
icftrneas  to 
iirthcr,  tho 
mt  ill  all 
with  the 
land.  Be- 
lie utterly 
lands,  one 
;iit  balance 

ho  doinnnd 

partly    on 

ter    of    its 

peoide    are 

In    one 

emand    for 

He    must 

inting    and 

lot    find    a 

tt  wasteful 

ealth   than 

the  midst 


Natural  Wealth, 


~l 


4S 


The  civili/od  man,  on  tho  other  hand,  has  a  Htro.t^'cr 
demand  for  niatiirial  weiilth  than  the  suvage.  'I'hrre 
is  no  known  limit  to  his  demand  for  natural  wealth, 
except  his  physical  ability  to  make  use  of  it.  His 
demand  is,  however,  much  more  intelligent  than  that 
of  tho  savage.  He  seeks  out  all  the  various  resource.* 
of  his  region,  and  endeavors  by  labor  to  turn  all  tho 
best  of  them  to  account.  A  civilized  community  may, 
thoreforo,  live  and  flourish  in  a  region  where  a  savage 
community  one-tenth  as  numerous  would  perish  of 
want. 

Given  the  character  of  the  inhabitants  of  a  country,  we 
may  safely  assume  that  tho  demand  for  natural  wealth 
will    increase    with    tho    increase    of    population.      Tho 
more  persons  there  are  to  be  supplied,  the  greater  the 
amount  needed   to  satisfy  them.    This  docs  not  mean 
that  the  demand  for  each  kind  of  natural  wealth  must 
increase  in  the  same  proportion:  trade  between  diflenuit 
regions  and  countries   modifies   tho   particular  direction 
of  the  demand  in  each  case.     England,  for  example, 
draws  her  supply  of  wheat  largely   from   tho   United 
States.    This  increases  in   our  country  the  demand  for 
wheat-growing  lands,  and  di  finishes  the  demand  for  the 
sources   of   materials   needed  for  the  production  of  the 
things  we  get  in  exchange  for  the  wheat.     In  England 
there  is  a  lessened  demand  for  wheat-growing  land,  and 
an  increased  demand  for  the  natural  wealth  needed  for 
the  production  of  the  articles  she  gives  us  in  exchange. 
Still,  it  is  clear  that  an  increase  of  population  involves, 


46 


Ihliiicnl    Kfonomy. 


in  flvory  country,  nn  imnuiHml  (hMimiid  f»ir  some  form, 
ttiitl  UHHully  for  nil  foniis.  of  naturnl  wtmlth. 

a    Natural   Wealth    i*    fpratuitou    while    the    Supply 
•xoeedi  the  Demand.  —  Niitunil   wealth   is  originally   u 
^gift  to  tl>o   human  rnco.    The   first  owner,  whether  a 
^jovcrnnient  or   nn    iiuUvidual,  gets   it   in   all  cases  for 
the    mere     trouble    of    talking    it.     .0    long,    in    any 
region,   as    there    ia    enough    of    any    particular    kind 
of  natural  wealth  to  satisfy  the  whole  (lesiro  of  every- 
body for  the  iK)8He8«ion  of  it,  that  particular   kind   win 
be  obtained  free  of  cost  by  everybody.     No  man  would 
pay  a  price  for  a  given  jxtrtion  of  it,  if  otiior   jjortions 
equally  desirable  were  still  to  be  had   out    ol   nature's 
free  suiiply.    Tlierefore    natural    wealth    that  is   found 
everywhere    in    unlimited    quantity   and    of    uniform 
quality,  —  air,  for  example,  —  can  never  cost  any  man 
anything.    There  are,  no  doubt,  special   circumstances 
in  which  men  find  themselves  cut  oft'  from  the  natural 
supply  of  air,  in  which,  therefore,  lalwrious  contrivances 
have  to  be  used  for  conveying  fresh  air  to  them.     l$ut 
fresh   air   in  a   crowded    hall,   or   in  a  mine,   or   in  a 
diving-bell,  is  brought  there  by  the  use  of  labor:  is,  in 
fact,  a  product  of  labor  quite  as  trul"  as  coal  in  our 
bins  or  ice  in  our  refrigerators  is  a  product  of  labor. 
The  contrivances  for  conveying  it  cost  sometliing ;  but 
the  air  itself  required  for  the  purpose  costs  nothing. 

4.  Natural  Wealth  acquires  a  Price  when  Demand  ex- 
ceeds Supply.— Natural  wealth  that  is  limited  in  supply 
can  also  be  obtained  free  of  cost  wherever  the  supply, 


Nntur(il   U'roUh. 


47 


some  (urm, 
h. 
the    Supply 

originally  a 
',  whothor  a 
all  cnses  for 
ng,  in  luiy 
ticular  kind 
ire  of  every- 
%T  kind  can 
)  man  would 
her   jjortions 

o.f  nature's 
liRt  is    found 

of  uniform 
D8t  nny  man 
jirciimstances 
1  tho  natural 

contrivances 
)  them.  ]tut 
line,   or   in  a 

labor:  is,  in 

coal  in  our 
act  of  labftr. 
[Tiething ;  but 
ts  nothing. 
a  Demand  ex- 
ted  in  supply 
sr  the  supply, 


though  liniitod.  exceeds  the  demand.  lh,t  so  moou  a8 
owing  to  increase  of  |H.puIation.  th..  .l.-nm,..!  for  any 
given  kind  of  rmtural  wealth  iK-conics  greater  than 
tho  supply,  that  parti.ular  kind  pas.ses  i„tr)  the  list 
of  things  for  which  a  price  must  1...  paid.  Those  who 
wi.sh  t.i  g.'t  it  must  indu.-e  Nome  holder  of  it  to  part 
with  his  holding,  by  th,.  Oder  of  something  else  in 
exchange. 

It  may  seem,  in  such  a  case,  that  the  cause  of  the 
price  is  the  fact  that  certoin  jH-rsons   hold   the   whoh. 
supply   and   refuse   to   i«irt   with   it   without   payment. 
But   the   tru(!   cauH(,  is   the  greatness  of  the  demand. 
If    th(!    whole    Ripply     were    again    thrown    open    to 
everybody  free   of  cost,  or  wei-e  shared   e(,ually  among 
all   seekers,  the   article   would  still   command   a   price, 
because  (on   the  supposition  that  the  demand  exceeds 
the    supply)   there   would    still   be   son.e    perH..ns    <ln- 
siroua  of  getting  n.oa'  than   the  eciual  sharing  would 
give   them;  and   they  would    lie    ready   to   pay   some- 
thing to  other  holders  for  their  share. 

Since  niost  kinds  of  natural  wealth  are  found  in 
varying  degrees  of  excellence,  only  the  IvtU^r  grade^ 
or  siKJcimens  of  each  have  a  price  at  first.  So  long 
as  the  next  inferior  grade  exceeds  the  demand  for  it. 
it  will  remain  gratuitous ;  and  tho  price  of  the  bettor 
grade  will  l>e  limited  to  the  value  of  the  diflerei^ce 
between  them. 

Since  the   population   of  most  parts  of  the   United 
States    is    increasing,    wo   find,  as    we    should    expect 


4H 


lUiticitl    Kronomy. 


to  flii.l.  thnt  iimiiy  lliiiinH  which  could  (..rinrrly  »w 
ol.tuiiKxl  fruo  of  coRt.  or  nt  ft  merely  imniiiinl  pi.-n. 
aru  n«>w  no  Iohkit  h<-  oliluinablti.  AIno  Hiiwo  Iho 
ratio  of  popiilntion  to  imtunil  w«a!»h  «lil1Vrs  Kn-ntly 
ill  iUm'rciit  parts  «»f  tlio  country,  we  fii..i  thnt  hoiiio 
ft.ruiH  (tf  uuturiil  wcallli  which  fo«t  litth-  or  nothing 
ill  ot  n  part,  hiivo  ii  couHidfrubh"  pric**  m  olhtr  part«. 

Of  coHiHu   ill  th«   ca«o   of   ImiiHiMirlnbh',  tilings,   tliiH 
(UmTiMicu    of    price    could    not    ordinari'.y   oxcwed    tho 
cost  ("f  tmnHiH.rtation.     But  tho  cost  of  trftn'iK.rlnlion 
ig   itself  coiiHiduruhlp,  CHiKJcially  in  tho  coho   of  bulky 
ttiid   lioiivy  nrtick's   hucIi  n&   nmko  up  bo  krgo  ft  part 
of  nntural  wealth  (^  <j.  coal,  wood  of  all  kinds,  build- 
ing-stone,  inotiillic  ores,  etc.).      Agftin   Bomo    kind*   of 
natural   wealth   are    not  transjM.rlabie.      Jjuid,   for  ox- 
amplo.   cannot    be    carried    from    regions   where  it  is 
cheep  to  places  where  it  is  dear.     It  therefore  hap;M<nH 
that  land,  eapccially  land    for   building    purposes,  may 
hove  a  very  high   price  in  one   place  and  a  very  low 
one  in  another.     A  single   sciuaro   yard  of  land  in  tho 
central    parts   of    New    T'ork,  or  Chicago,  costs  moro 
than  a  Hciuare  mile  in  some  parU  of  tho  world. 

5.  Some  Exceptional  Caw».  — There  are  a  few  forms 
of  natural  wealth  that  never  i  cfjuiru  a  vaUie  in  ex- 
change, however  far  the  supply  of  them  may  fall 
short  (u  satisfying  the  demand.  In  certain  cases  this 
is  because  the  nature  of  the  thing  is  such  that  many 
persons  can  use  it  in  covnmon  without  interfering 
with   each   other,  and   the   laws  of  civilized   countries 


yaliiral   n'fnUh. 


49 


foriiK^rly   Iw 
iiiiiiil   pi 'en, 

iVr»    K'^''*^'y 

timt  Hoiiin 

or   iintiiiii(; 
lu-r  i>art<«. 
tilings,   tliiH 

oxcihhI  tho 
■on'iKirtatioit 
no  of  liulky 
largo  a  \n\ri 
<\uds,  builU- 
no  kindt  of 
iu»l,  for  ox- 

'^here  it  is 
foro  hai.;HmM 
iiriH)90H,  may 
1  11  very  low 

laud  in  tli« 
,  costs  nioix! 

worlil 

n,  few  forniH 
vit'uo  ill  ex- 
ni  may  fall 
in  caaes  this 
;h  that  many 
t  interfering 
zed  countries 


give  tho  right  of  hm  to  ovoryUxly  frw»  of  rhnrKo: 
hurlKJW  and  naviKubh?  rivom  ore  examplcii.  In  tho 
remaining  cuhoh  tho  fniluro  to  ncquiro  oxohungo  voUio 
Ih  duo  to  tho  fact  that  th<'  xnturo  of  tho  thingri 
tlioin«elvoH  r«.'n<JorH  it  iin|MiHMi  tlo  for  tlunn  to  \w 
iKxight  nitd  Mold.  l^iill,  for  t-v.-tinplc,  woiijil  bring 
ft  high  j»rio<'  in  soino  oountri<H  hI  uhu^t  nuy  tiriio, 
fthd  in  ov<.'ry  country  ut  particular  timcH.  But  ruin 
Ih  a  form  ff  natiirni  wonlth  that  cannot  1«-  inui,sf..rrc<l 
or  du'crtod  fnnn  one  mafn  IIcMh  to  thonc  of  another, 
or  froiu  one  region  V*  another.  'Plj,,  .m,i„„,  j^  true  of 
all  other  ch'.nciitM  that  go  to  form  tho  chniatc  of  ony 
region.  ThoHO  who  would  have  the  iR-nofit  of  them 
inuHt  go  whero  they  nro  found,  and  found  ordy  as 
grutuiticM  of  nature. 

Though  harbors,  rivers,  clinmtp,  ncenory.  nn<l  thn  like 
have  no  oxchan^e  value  of  their  own,  it  is  obviniis  that 
they  may  alFect  very  much  th')  valie  of  other  kinds 
of  natural  wealth,  ~  esiwcully  that  of  lajid.  It  is 
well  k:u)wn  that  land  lying  near  to  harbors  and  navi. 
gablo  rivors  has  a  higher  value  than  land,  equally 
good  as  land,  which  ia  remote  from  such  facilities.  In 
tho  same  way  a  good  climate,  including  regularity  and 
sufficibucy  of  rainfall,  tends  to  attract  men  to  tho 
regioiis  enjoying  those  advantages.  The  resulting'  in- 
crease of  demand  f(»r  tho  natural  wealth  of  those 
regions  must,  of  course,  tend  to  raise  the  value  of  such 
parts  of  it  as  con  have  exchonj."!  value. 
6.  The  Biaing  Value   of    Natural   Wealth   no   general 


M 


i\ttUi''>l    KcoHnrntf. 


OaiB.— Wtiitn  »  H»w!ul  thing,  foriiM'rly  witluMit,  «'xrhiuiKfl 
viiluo,  uciniiri'd  a  viilim  in  oxtlianKn  l.y  ntftm.n  of  an 
IncWMO  of  (loMuuiil.  U  in  woll  t«>  olwitrvn  thai  thti  coin- 
nmiiily  m  a  wliolo  gftiiin  uuthiiig  hy  tho  c^liiuin-'.  Tho 
jiorionii  who  own  tho  oxisling  nupjily  of  iho  arti<  In  nro 
U«ni'flt«Ml,  hut  thtfir  Kuin  U  »t  tho  oxih-uhi'  ..f  thn  nwt 
<it  tho  coniniuiiity.  Tho  rhang.-  li»iiU«»*i.  in  itm-lf,  no 
inorwuM)  <»f  tho  actual  things  owiuul  ami  onjoyod  hy 
the  conununity  m  nntunil  wuaUli.  Thoro  U  niniply  ah 
incroaiu)  in  tho  nuntlwr  of  jHirnonH  wantinK  thoi»o  thinK«. 
with  tho  runult  tliat  thtsro  is  low  (ur  each  than  thcro 
wan  forinorly. 

If  thi'  circuniHUnuM'  that  cauwm  any  kin«l  of  natuml 
woullh  to  m(iuin!  on  oxdiango  vahio  Im!  n  hwH«nin«  of 
the  BUpply,  it  ii  obvioue  that  tho  cojuniuiiity  im  not 
only  not  richer,  but  i»  oven  \)(H)rvT  hy  ruoHon  of  tho 
chaiif^o.  It  ha«,  so  far  iw  this  iM)rti<»u  of  itH  wcaltli  is 
concermd.  a  Hinallor  8t<Mk  of  usoful  things  than  hoforc. 
Tlie  individual  owners  of  tlio  ronmining  sujiply  may  gain 
by  the  change.  Their  gain,  however,  is  at  the  oxik-uho 
of  other  nion.  If,  for  example,  the  supply  of  fresh 
vraU'T  should  bocoine  so  reduced  na  to  aoquiru  a  con- 
HJcU'rahlo  exchange  value,  the  owners  of  ordinary  springs 
might  be  enriched;  but  the  general  Inxly  of  citizens 
would  Ikj  iKJorer  than  Itcfore. 

When  the  natural  wealth  that  has  Iwcn  lessoned  in 
Bupply  is  not  privaU-.,  but  public,  propirty.  noluHly 
gains  by  the  change.  For  examide,  the  diminished 
productiveness  of  the  fisheries  has  been  attended  by  a 


lout  (•xc'lintigt 
nuiMuii  of  iin 
Llml  th"  COM- 
v\int\\no,  Thu 
1h)  nrticUi  nrn 
i(t  of  tliu  rt'Ht 

ill  itnolf,  no 
il  iMi joyed  liy 
I  ii  Hiiiiply  art 

thimo  tliinj^n, 
zU  tliiui  llutru 

in«l  of  iiatiiml 
a  l(wsuiiiii({  of 
iiiuiiity  iM  not 
rttnHoii  of  thu 
t  itM  wcallli  is 
^s  tliun  hi'fort'. 
i|iply  limy  gain 

[»t    tho   OXIHJUHO 

(tply  of  truah 
ocMiuiru  a  con- 
nliniiry  springs 
Kly    of  citizens 

)cn  luflsuncd  in 

niMirty,   noluMly 

bho    (liinini»hc(l 

att*!nded  by  a 


Nrtturol   WfnUh, 


r>i 


riM  in  tho  vnln.i  ..f  H,|,.  |j„t  tliJA  rf««  Is  only  sufH- 
dent  to  .oiinN-n-nt.'  th.*  nsh.'rni..|i  fur  tho  iii.rm»...d 
Uhor  r...,„ir,..|  in  rntihinK  n  «lvfln  .inantity.  Th.* 
dit.iiniHhi.1  yiidd  i»  a  ,|,„,,|„  1,,^^  t„  «vorylMMly.  Th.i 
•anio  prin.i|.I..  appliri  to  thu  |.ri«in>nt  snirdty  nnd  con- 
"O'puMit  high  vnhi..  of  j5..,ino.  for««t.tri,..s.  fnr  »H.ftrin« 
a?iinial«,  itr,  ns  r..iii|iar«'d  widi  early  tinn's. 

This  last  remark   M\^>^vHiH  the   (....t  that  somo  kinds 
of   nntnral    wealth    are    niiavoidal.Iy  diiiiiiiiiih«d    l,y    H,,, 
proKnms  of  eivili/atiui,.     The  destru.lion  of  the  fon-MtH 
together     with     th.t   game    nod    other   prcHhuts   of    wild' 
nature,  is   n.  .enMary    in  order   to  (it  tho  land  for  ag.i- 
cultnri);  and   it  in   nee.||eH«  to  m.y   that  the   faring  nr« 
moru  nm.fnl  and  a  greater  wealth  than  the  UavhU  they 
hnvo  displaeod.     Jh.t  it  ih  no,,,,  the  less   tnu.   thut   the 
loss   of  the   foreflts   is  in    itsolf  a   Vm  of  wealth.     If 
hmd    couM    Ihj    tilletl    without    interfering    wih    tho 
growth   ..f   tntes,   we   .should    all    Ihj   ri<;l,er.  not  jKiorur 
than  we  an-      Tm«   for  fu.d  an.l  for  huildiug  purpose,' 
conhl  the,,   Ik)  ohtaini-d,  i„    „i...st  plaees.  f„r   the    rnero 
tronhlo  of  cutting  them  down  o„  tho  neaie.Ht  hill-Hide- 
where,is  at  proHcnt  th.-y  have  a  v.,ry  cunsideiablo  ex' 
<  hungo  vuluo  in  ull  Hcttluil  rugious. 


} 


0 


^wiiiiiiiiiiniaimiiiui,ii.,4,.i- 


CHAl^EU    VT. 

OP    LABOR    AND    ITS    PRODUCTIVENESS. 

1.  Productive  Labor.  -  Natural  wealth,  as  wo  have 
seen,  is  the  baiiis  and  source  of  wealth  prochiced  by 
lahoi.  Any  human  exertion  devoted  to  procurnig 
or  preparing  natural  wealth  for  the  uses  of  men,  is 
called  I'roductive  Labor. 

Productive  labor  is  of  many  kinds.  First  and  most 
obviously,  it  includes  all  the  manual  labor  of  preparing 
tools,  implements,  buildings,  and  machinery  needed  m 
production;  of  preparing  the  natural  agents  (e.  fir-  l«n^^) 
and  procuring  the  raw  materials;  of  working  up  these 
raw  materials  into  the  various  conmiodities  of  civilized 
life;  and  of  carrying  on  the  exchange  of  products 
between  the  various  sets  of  producers,  -  including 
herein  the  necessary  labor  of  transportation. 

I'roductive  labor  includes,  secondly,  all  mental  efforts 
whose  aim  is  the  production  of  material  wealth.  Strictly 
there  is  a  mental  effort  involved  even  in  manual  labor 
of  the  simplest  kind.  But  there  are  some  kinds  of 
productive  labor  in  which  the  exertion  is  more  dis- 
tinctly that  of  the  mind.  This  is  true  of  the  labors  of 
merchants,  bankers,  book-keepers,  inventors,  managers, 
and  all  others  whose  task  lies  in  planning  and  directing 

62 


I 
V 

0 

r 

P 

0 


PrnthidivmfM  of  Lnlor. 


53 


as  we  have 
producod  by 
to  procuring 
8  of   men,  is 

irst  and  most 
:  of  preparing 
jry  needed  in 
ts  (e.  g.  land) 
king  lip  these 
OS  of  civilized 
)  of  products 
J,  —  including 

on. 

mental  efforts 
ialth.  Strictly 
I  manual  labor 
some  kinds  of 
is  more  dis- 
f  the  labors  of 
tors,  managers, 
g  and  directing 


tho  work  <.f  pr..(hu;tio„  ,,u.l  ..xchang.'  Such  labors 
are  necessary  iu  order  to  carry  on  pr..(h.ction  ofle.tively. 
and  are  as  truly  productivi!  as  is  the  labor  of  those  who 
come  into  (H  tual  contact  with  tlie  things  produced. 

2.    Non-productive   labor.  —  Tlie   greater  part  of  the 
world's   ]ab..r  is  directed   to  the  pr..ducti..n    of  wealth. 
IJiit  we  hav(!    many  needs   besi<les   those  that  material 
tilings   can   satisfy.     In   infancy  and   again    in  old  age 
wo  need  nursing  and  care.     In  sickness  we   need  also 
the  help  of  a  physician.     iJorn  ignorant  and  with  nmny 
evil  propensities   to  overcome,  we   need  much  careful 
training,  instruction,  and  (on  our  own  part)  study,  in 
order  to  become  enlightened  and  useful  men  and  woinen. 
As  members  of  civilized  society  we  need  the  labors  of 
legislators,  judges,  administrators,  and  other  guardians 
of  law  and  civil  onler.    These  and  many  other  sorts 
of  labor  we  need   not  a.s   producers,  but  as  men  and 
as   citizens    of  a   civilized    country.      We  should   need 
them  even  if  the  material  commodities  we  require  were 
supplied  to  us  without  effort  or  exertion  on  our  part 
These  kinds  of  labor  we  shall  therefore  designate  as 
non-productive. 

Incidentally  non-productive  labor  may  help  in  the 
production  of  wealth.  When  a  teacher  reclaims  a 
vagrant  youth  and  converts  him  into  an  honest  laborer, 
or  a  physician  cures  the  ailment  of  a  producer  and 
restores  him  to  his  work,  or  the  civil  authorities  repress 
public  disorders,  the  act  has  in  each  case  the  effect 
of  increasing  production.     But  this  effect  is  undesigned. 


54 


IHiticnl   Eronomy, 


or  at  moat  soc-ondary.  Hfsidci.s  it  would  bo  dittiiMilt, 
as  \v(!ll  as  iiseless,  t<;  (listiii«5ui.sli,  amoii},'  acts  of  tliis 
clmractor,  those  that  an;  indirectly  productive  from 
those  that  are  not  sr).  We  shall,  therefore,  understand 
rrodiu'tive  Inhor  to  nienn  labor  whose  immediate  ol)ject 
is  the  production  or  exchange  of  wealth.  All  other 
lalxtr  we  shall  regard  as  Non-productive. 

3.    The  Productiveness  of  Labor,  — The  circumstances 
which   determine    how   great    an    amount   of   wealth   a 
man  may  produce  by  his  labor,  are   too   numerous   to 
admit   of   complete    enumeration.      They    are,   however, 
reducible,  for  the  most  part,  to  three  general  classes: 

(a)   The   working  capacity   of  the   man   himself,  his 
diligence,  energy,  intelligence,  and  endurance,  go  far  to 
determine  the  jn-oduct     The.se  nro  points  in  which  men 
differ  very  much.     This  is  true  not  only  of  individuals 
but    to  a   considerable    extent    of    whole    nations    and 
races.     The  ixjople  of  the   United   States  are  pre-emi- 
nent for  their  efficiency  as  laborers.    They  are  drawn 
mainly  fiom  those  branches  of  the  human  family  that 
excel  in  all  the  qualities  that  give  success  in  the  pro- 
duction of  wealth.     Further,  the  original  settlers  were, 
in   a   way,  picked  men   of   the   nations   to  which   they 
belonged,  since  none  but  men  of  courage  and  capacity 
would    face    the    dangers    and    hardships    of    the    long 
voyage  and   of  the   pioneer  life  that  it  brought  them 
to.     Of  the  subscfpient  migration  of  Europeans  to  our 
country,  the  same  remark  holds  true  to  a  very  consider- 
able  extent.      The   more   capable   and  enterprising  are 


Productiveness  of  Labor. 


55 


bo  (UniiMiit, 

acts  of  tins 
luotivo  fnim 
I,  uiKlcrstand 
odiate  ol)ject 
,     All   other 

;ircuinstances 
of   wealth   a 
numerous   to 
are,   however, 
ral  classes : 

himself,  his 
ice,  go  far  to 
in  which  in  on 
if  individuals 

nations  and 
are  pre-emi- 
;y  are  drawn 
1  family  that 
IS  in  the  pro- 
settlers  wei-e, 
)  which   they 

and  capacity 

of  the  long 
brought  them 
:)peans  to  our 
very  consider- 
terprising  are 


thos.5   most   rea.ly  to  come;  the  sluggish  and  shiftless 
usually  stay  at  home. 

(ft)   The    productiveness    of    a    man's    labor    doimuln 
largely  on  the  character  of  the  natural  wealth  he  has 
free   access   to.      If  that   be  rich  and  copious,  and  all 
the  natural  conditions  be  favorable  to  his  industry,  his 
[.roduct  will  Ih3  largo  for  a  given  outlay  of  labor     The 
people  of  the  United  States  are  highly  favored  in  those 
resiKJct-s.    We  have  ample  areas  of  fertile  soil;  for  the 
most    part    we    have    a    favorable    climate;    we    have 
almost  every  material  and   natural  facility  for   produc 
tion.     Compared  with  the  extent  of  our  natural  wealth 
of  all  kmds,  our  i>opulation  is  small,  so  that  there  are 
comparatively  few  place.s  in  which  very  good  resources 
limy  not  be  obtained  at  a  low  cost     In  these  respects 
our  producers  have  great  advantages  over  the  inhab- 
itants  of  older  and  more  crowded  countries. 

(c)  The  productiveness  of  labor  in  a  country  depends 
much  on  the  advancement  its  people  have  made  in  the 
arts  of  production,  that  is  to  say,  in   the  discoveries 
and  inventions  by  which  the  great  forces  of  nature  are 
made   to  aid   in  the   work  of  production.      There  are 
some  industries,  such  as  the  manufacture  of  cloth,  in 
which   it  is   probable   that   modern   machinery   enables 
men  to  produce  a  hundred  times  as  much  as  thev  could 
produce   by   the    old   modes   of    ha.,d-manufacture.     In 
every  sort  of  production  skilful   devices  may  do  much 
to  add   to  the   product,  or  improve   its   quality.     Here 
again    the  people    of  the    United    States   have    shown 


"^wHesesMi^ 


56 


rulitknl    Economy. 


groat  ciiiMicity  for  tho  invoiition  !iu<l  use  of  machinery, 
ftiid  for  tlio  discovery  of  new  metnoas  of  production. 
The  intelHgouce  and  ingenuity  of  our  laborers  have 
liecn  stimulated  into  great  inventive  activity  hy  our 
Patent  Uws,  which  socuro  to  every  inventor  tho 
exclnsivo  right  to  manufacture  his  device  for  a 
limiUid   numlier   of  years. 

In    addition    to    these   general   causes    affecting    the 
productiveness   of  labor,  the   capacity   of  a   mition    for 
properly    organizing    and    managing    its    industries    de- 
serves  to   he   mentioned.     The    industrial  system   of  a 
civilized   country  is   highly  complicated,  and   calls   for 
great  skill  on  the  part  of  those  who  arrange  its  details. 
How  best  to  divide  and   subdivide    tho  work  among 
different  set^  of  laborers ;  what  grouping  of  the  various 
sets  is   most  advantageous;  how  the  various  local  re- 
sources may  be  turned  to  best  account;  how  large  a 
scale   of  production   under  a  single   management  gives 
the   best  results,  —  these  and  many   similar  questions 
must   be   solved   before   the    labor    of   a   country   can 
reach  its  full  capacity  for  production  of  wealth.    Wise 
and  skilful  management  turns  every  advantage  to  the 
best  account,  prevents   waste    of    labor  and   materials, 
and  thus  gives  us  every  commodity  for  the  least  pos- 
sible exertion. 

4.  WeU-being  of  the  Laborer.— There  is  one  other 
general  remark  to  be  made  regarding  the  productive 
capacity  of  laborers,  and  that  is  that  the  productiveness 
of  labor  depends   much  on    the   state   of  comfort  and 


Well-hciag  of  the  Lnhorer. 


m 


machinery, 
production, 
iliorers  have 
vity  liy  our 
uventor  tlio 
avice    for    a 

iffccting  tlio 
[I  nation  for 
ulustries  de- 
systeui  of  a 
nd  calls  for 
re  its  details, 
work  among 
if  the  various 
ous  local  re- 
how  large  a 
gemeut  gives 
ilar  questions 
country  can 
(realth.  Wiso 
vntage  to  the 
nd  materials, 
bhe  least  pos- 

is  one  other 

be   productive 

jroductiveness 

comfort  and 


contentment  in  which  the  lahorers  are  maintain<Ml.  A 
certain  degnni  of  comfort  is  iKicessnry  in  ordctr  simply 
to  keep  them  in  pliysical  vigor.  n„t  tlmt  is  as  true 
of  dumb  animals  ns  it  is  of  meti.  Mmi  are  much 
inlluen(!od  hy  tlieir  stato  of  mind  as  well  a.s  l.y  their 
state  of  body.  It  is,  therefon-,  wise,  on  [.urely 
economic  grounds,  to  do  wliat  may  he  d(,m,  without 
injustice  to  others,  to  remove  real  or  fancied  grievances 
on  the  part  of  any  class  t»f  lal).orers.  Men  who  are 
satisfied  with  the  conditions  under  wliich  they  work, 
will  produce  more  and  better  results  than  men  who 
are  chafing  under  a  sense  of  wrong,  or  have  abandoned 
them.selves  to  despair. 

For  this  reason,  as  well  as  on  higher  grounds,  slavery 
is  to  be  condemned.  It  deprives  the  labt)rer  of  every- 
thing which  could  spur  him  to  e.xert  his  powers.  For 
this  reason  also  every  other  unfair  or  oppressive  treat- 
ment of  laborers  is  contrary  to  the  general  interest. 
Cheerful  and  willing  workers  are  those  who  produce 
most  wealth. 


I; 

■1; 

,  * 


CHAlTKIl    VII. 


THE    NATURE   AND    NEOESSITV   OP   CAPITAL. 

1.  Contrast  between  Savage  and  Civilized  Industry.  — 
Wlierevcr  laborers  aiul  natural  wealth  exist,  production 
of  some  sort  is  possible.  In  thcie  i)art8  of  the  world, 
where,  without  the  aid  of  human  labor,  tlu!  uiuth  bears 
copious  supjilies  of  wild  fruits,  nuts,  and  edible  roots, 
men  may  Hud  a  rude  subsistence  without  other  tool  or 
iinplenient  thaii  their  hands.  The  production  carried 
on  by  savage  races,  consisting  as  it  does,  for  the  most 
part,  in  merely  gathering  or  capturing  the  spontaneous 
growths  of  land  and  water,  requires  but  few  imple- 
ments, and  those  of  the  simplest  character. 

If  we  compare  the  production  carried  on  in  civilized 
countries  with  crude  production  of  this  kind,  we  find 
(in  addition  to  other  difTerences)  these  striking  points 
of  contrast:  First,  that  civilized  production  requires  a 
large  outfit  of  tools,  machinery,  buildings,  and  other 
appliances.  SecoiuUy,  that  civilized  production  reciuires 
large  quantities  of  materials,  meaning  thereby  not  only 
things  in  their  natural  state,  but  also  things  that  have 
had  labor  bestowed  upon  them,  — things  that  have 
passed  through  one  or  more  stages  of  production. 
Thirdly,   that  civilized   industry,   being    carried    on  by 

68 


T/mr  Formn  of  ffnpUnl. 


no 


Industry.  — 

it,  production 
»f  the  world, 
I!  ijurth  bears 
ediblo  roots, 
other  tool  or 
ction  carried 
for  the  most 
I  spontaneous 
;  few  iinple- 
r. 

a  in  civilized 
kind,  we  find 
.riking  points 
on  requires  a 
[s,  and  other 
ction  reciuires 
reby  not  only 
igs  that  have 
13  that  have 
f  production, 
arried  on  by 
68 


division  of  labor,  needs  t..  have  largo  ([uantitics  nf 
linishcd  con.uioilitiea  always  on  hand,  f.)r  purposes  of 
exchange. 

Wo  see,  then,  that  in  order  to  carry  mx  civili/ed  pro- 
duction  and  exchange  the  productsrs  nuist  have  the  use, 
at  any  given  moment,  <.f  the  results  of  much  previous 
labor.  To  these  results  of  pa.st  labor  used  in  present 
production  and  exchange  the  general  name  of  Capital 
is  given. 

2.  Tkree  Forms  of  Capital.  —  The  capital  of  a  country 
consists  ui  three  parts,  answering  to  the  three  needs 
spoken  of  above.  In  order  to  obtain  clear  views  as  to 
the  nature  and  uses  of  capital  it  will  bo  necessary  to 
consider  each  of  these  portions  separatelv. 

(a)    The    plant   of    production,      'i'his   includes   the 
buildings,  implements,  and  machinery  of  all  kinds  used 
in  i.ro(lu(!tion  and  e.Kchange.     Under  this  head  wo  in- 
elude  also  many  tilings  which  w,,uld  not  ordinarily  be 
called  machinery;  such  as  railways,  ships,  canals,  piers, 
and  the  like.      Also  we  include  money,  since   it   is  a 
product  of   labor   used    in   the    exchange    of    products. 
Also  we   must  include  the  changes  wrought   by  labor 
in  the  land  in  order  to  prepare  it  for  use  in  produc- 
tion.    The  land  itself,  in  its  natural  state,  is  not  capital, 
because  it  is  not  a  product  of  labor.     The  capital  u.sed 
in   agriculture    includes,   besides    buildings    and   imple- 
ments, everything    by   which    a    farm    differs    from    a 
forest.     That  is  to  say,  the  improvements  in  land  are 
capital,  though  the  land  itself  is  not 


P 


tmemmmmmh 


i 


CO 


Jhtitieal  Efonmny. 


(h)  Sfi(;«»ndly,  nmterialH  of  i»ro»Uu!ti<m  im  which,  or 
f(.r  wliich.  liihur  hiis  h.H'ii  H\w\\i.  Th^H  l.rinKH  us  again 
to  th(i  fact  that  tho  production  of  a  C(»nimotlity  in  in 
most  (!aHC8  not  a  Hinglo  act,  but  a  suci-ossion  of  act«. 
To  maku  a  tahlo  inchulos  cutting  down  the  truo.  Hawing 
it  up,  drying  the  hourds,  drcsHing  tho  picccH  to  the 
nujuircd  Hhii]M'H,  and  finally  fastening  them  togcithur  in 
tht!  form  of  a  talde.  To  make  a  coat  inv«dvc.s  raising 
tho  wo(d,  comhing  and  spinning  it,  dyeing  tho  yarn, 
weaving  it  into  cloth,  fulling  tho  cloth,  and  finally 
nmking  it  up  into  the  desired  garment. 

Now,  under  division  of  labor,  we  must  have  pU  theso 
ojwrations  going  on  at  once.  The  saw-mill  must  have 
logs  on  hand;  tho  drying  establishment  must  havo 
boards  on  hand  getting  dried;  and  the  cabinet-maker 
must  havo  a  supply  of  seasoned  stock  on  hand  to 
select  from.  The  spinner  must  have  wool  on  hand; 
tho  dyor  must  have  yarn  in  his  vats;  tho  weaver 
must  havo  an  assortment  of  dyed  yarns;  the  fuller 
must  have  untuUed  cloth  on  hand;  and  finally  tho 
tailor  must  have  a  supply  of  various  kinds  and  pat- 
terns of  cloth  to  draw  on  in  order  to  suit  t' e  tastes 
of  those  who  want  coats. 

If  anybody  doubts  that  these  productp  of  past  labor 
are  necessary  in  order  that  the  labor  <,f  to-day  may  go 
forward,  let  him  imagine  how  things  would  stand  with 
the  cabinet-maker,  if  he  had  to  wait  till  the  tree,  cut 
down  this  morning,  should  be  ready  for  making  up  into 
tables ;  or  how  it  would  fare  with  the  tailor  and  the  man 


(/MUmoditifit  Hi'fkint/  Krchnngc 


61 


which,  ctr 
{H  118  ayain 
lodity  in  hi 
ion  of  actH. 
treo,  Hiiwitin 
ict'H  ttt  thw 
t(tg(!tht'r  in 
IvcH  raising 
5  tho  yarn, 
iiiul   finally 

vo  pU  thos'j 
[  must  have 

must  have 
ibinot-niakor 
^Xi  hand  to 
il  on  Imnd ; 

tlio  weaver 
;    the    fuller 

finally  tho 
(Is  and  pat- 
it  t.Ve  tastes 

)f  past  labor 
-day  may  go 
I  stand  with 
the  tree,  cut 
king  up  into 
and  the  man 


who  wnntfl  tho  cent,  if  thoy  had  to  wait  for  the  cloth 
to  ho  wovPM,  and  tho  weaver  had  to  wait  for  tho 
yam  to  lie  .spun,  and  tho  spinner  had  to  wait  for 
the  wool  to  he  grown. 

As  all  producers  oro  to  work  ovory  day,  each,  except 
tho  first  in  cwdi  series,  must  have  a  supply  of  his 
I»r(>iH!r  material  to  work  upon,  nnd  this  supply  must 
have  been  prepared  for  him  by  previi.us  labor  ..n  the 
part  of  those  performing  the  earlier  .stafees  of  tlu-  wo*  :. 
It  is  obvious  also  that  in  all  cases  wliere  other  things 
aro  needed  besides  machinery  and  the  material  operated 
on,  those  too  must  be  provided  in  advance.  Tli"  most 
common  e.xamjde  of  this  is  fuel  for  the  engine. 

Materials  on  which,  or  for  which,  no  labor  has  been 
expended,  are  not  capital.  (Joal  in  the  furnace -room 
of  a  mill  IS  capital,  but  not  so  coal  in  its  native  seam. 
Logs  in  the  timber-pond  aro  capital,  but  forest -trees 
are  not.  The  crop  growing  on  a  farm  and  the  cattle 
on  a  ranch  are  capital;  but  the  fishes  in  our  rivers 
and  lakes  and  the  wild  animals  in  our  forests  aro 
not. 

(i?)  Capital  in  commodities  seeking  exchange.  —  The 
third  form  of  Capital  is  connected  with  division  of 
labor.  It  consists  of  commodities  awaiting  exchange. 
The  difficulty  of  .selling  products  has  already  been 
spoken  of.  Wo  are  not  here  concerned  merely  with 
the  labor  it  inv(dves,  which  is  greater  in  many  cases 
than  the  labor  of  actually  producing  the  articles. 
The  chief  point  to  notice  at  present  is  that,  in  order 


62 


Jhlflifol    Krinwnifj. 


U\  onrry  an  flXfUf-ngo  of  priMluflH,  w«  mind  to  liftvo 
^^rvnl  uiuNMi'ft  ol  r'omiiHMlilifS  v-f  nil  kiinb  contiir.mlly 
oit  IiHiid  in  tlio  Htoros  iind  wanfnr)tjw«,  Thoiio  coin, 
inoditius  are  capitul,  i>r<Hlu«!U  <>f  Iftlxir  \wh\  in  ox- 
clmn},'!',     FroductioM  cannot  K"  «"  witliont  thunj. 

Invi'utiniiB  hnvo  dcMiu  much  to  chcuiu-ii  tho  pro- 
ducti'Mi  «tf  thingM ;  hut,  ht'yond  diinitiishitiK  tlui  eoMt 
•if  truiiHiKirtatioii,  litth  has  lu-oii  dotio  U>  clmximi  ux- 
chui>|?<.'.  1*1  fi»et,  considtring  t)i«  tvuidoncy  of  nicciit 
I'niwti  to  eroct  vory  costly  l»uildiiiK«  for  mu  tm  HtorcH 
and  alioim,  and  to  niulli|ily  tit*;  nuiulwr  of  thoin 
evorywhcns  wo  umy  fairly  <iiiiiHtion  wliuthcr  oxchun|,'o 
has  boon  <  iicftpfiiad  nt  all. 

Just  how  Rrcftt  a  luinilxT  of  hIiojis,  ami  how  great 
Huijplies  of  tiuishcJ  coninKKlitics  disidaycd  in  thcin, 
may  bo  necessary  for  carrying  on  oxchangt)  in  tho 
moHt  econoniif;i\l  way,  it  would  !)«  injjxwHiblo  even 
to  conjecture.  It  is  oi  !y  evident  that  we  need  hero 
a  largo  accumulation  of  jiroduets  of  past  labor,  and 
that  tho  more  tin  community  is  willing  to  pay  for 
conveniiMice  and  sumptuousness  of  service  ui  its  buy- 
ing and  selling,  tho  more  numeroiis  and  costly  anil 
fully  stockeil  the  stores  and  shops  will  ho. 

3.  Prcaiiction  in  Progress.  Viewing  now  the  pro- 
ductivo  system  as  a  whole,  aiul  at  work,  wo  may 
think  of  its  results  ns  a  stream  of 'ciunmodities 
flowing  day  by  day  into  the  reservoirs  of  trade, 
and  through  these  into  the  homes  of  tho  people. 
This  stream  is  made  up  of   many  smaller  .streams,— 


t 
I 

(1 
ii 

tl 

I' 

t( 

C( 

Pi 
ol 

at 
"1 

CO 


rapitnl  ia  roiuvmttl. 


oa 


10(1  to  !i«vo 
contiinmlly 

iN«ui    iti   ex- 

thi-tii. 

'u   tlio    i>ro- 

\m  till'  l"l»Ht 
<1H!UIM'1»    UX- 

y  of  n!coiit 
i«o  as  Mtorc'H 
t>r  of  tliuin 
lor  oxchuiiK« 

I  how  j^icat 
k1  ill  till) hi, 
iinmi  in  tlio 
)SHil)lo  evuii 
e  nuutl  horcj 
t  labor,  and 
to  ])ny  for 
in  its  bny- 
I   c(/stly   and 

iow  the  pro- 
•k,  wo  may 
'coiutnoditioM 
rs  of  trade, 
the  jiooplo. 
ir  streams,— 


each  iHdu«lry  contributinff  iU  quota  to  th«  |I.,w.  Co,,. 
ttnuiMg  th..  H««re.  wo  ,„.,y  «„y  i|„,t  „u.,h  of  th..M« 
IwH-or  Httmum  han  nt  it«  fouftaiii-h.-ud  th«  Inhnivrn 
who  Umw  the  original  nmf,.„ial.,  from  the  uaithj  the 
other  hiborer«  in  the  industry,  each  in  hin  pl«c« 
nre  enKaK-d  in  forwar.IinK  '"><i  tran^forn.ing  the«o 
"iaten.ilH.  HtaK«  by  „taKe,  towardf.  tli.-  final  form  in 
whuih  they  are  to  Im,  reeeivud  by  th.)  consiinu-r. 

Out  of  the  reservoirs  of  tra.U,.  every.  ,„a»  m-vm-n 
the  reward  of  his  exertions,  -  tho  daily  food.  el.,thi,.«, 
nnd  whatever  of  other  cfMnforts  and  l„x„ri,,H  ho  ,nay 
Imve  earned.  The  Iar«,.r  the  stroan.  of  products  the 
"lore  the  community  will  hav„  to  .livide  and  ..,.joy~ 
for  everything  in  it  g.„,s  to  sonu.bo<lv.  Ifnu  ,",,',.h 
man's  share  is  iletermin(ul.  we  shall  nmskkr  lafr. 

4.   Capital  is  Consumed.  -  It  follow,  from   the  nature 
of  the    uses   Capital   is   put   to   that   it   is    perpetually 
undergoing   transformations.     The  portion   that  consists 
of   niatenals    is    in    a   .ountant    sUur   of   ..hango    until 
It    eventually    is    carried    as    finished    comuiudity    into 
the   stores   and   shops;    fron>    here    it   sooner   or   later 
passes    into    the    hands    of    the    consumer    and    ceases 
to    bo    capital.      Hut    it    is    replace.l.   in    the    natural 
course     of    pro-Iuetion.    by    new    materials    an.l     new 
producU   coming    forward   all    fho  ti.ne    by    the   action 
of    the    producers.      Ouco    provided     .vjth    capital   and 
started   on    its    present   basis,    production    itself   kops 
up    the    stock    of    capital,    so    far    as    the    portions 
consisting   of  materials   and   of   commodili..s    awaiting 


64 


JUUienI    K<-i>notnif. 


(•xolmiiKn  nri'  rntin»rn«1.  We  couM  n<«t  \mAw'n  llm 
kiiiiU  n(  cummuiliii«'«  wo  do  pnuhict..  uml  UM 
.Uvinion  ..f  labor,  without  .  n-atiiiK  tlum.)  foriiw  of 
tapitftl.  flv.m  If  they  did  not  exUt  iHjforo.  Thin  in 
»ii,i|,ly  |mttin«  In  other  wurtU  tho  pruiMmltlon  timi 
cttjiiul  Ih  iiMCBMftry  for  liviliwd  production;  it  in  iu 
fiM^t  inMf'itftriiltIo  from  it. 

Ah  to  till*  oth.-r  |.ortioii  of  cai.it.il.  which  coi»Hi«tM 
of  machintiry.  hiiiiain«H,  rail  way  h,  and  tho  like,  tho 
COM  U  Bomowhut  dilV.r.-tit.  Thi«  form  of  cubital  in 
Also  coni.uiii«d,  hut  mure  slowly  tluiu  tho  ..tlmr 
IM.rtionR.  Tho  machinery  wcarH  oui.  the  l.uiMinKH  ami 
Hhips  decay.  ThoHO,  however,  arc  not  incvital.ly  and. 
am  it  wore,  uucoinciouHly  replaced  by  tlm  mere  courHo 
..f  production  itmdf.  A  portion  «)f  tho  labor  of  tho 
country  han  to  Iw  divi^rted  from  tho  work  of  directly 
prodiiciiif,'  coinmo<litiuH,  to  tho  work  of  pntvidinK  the 
tools,  uiachinory.  and  other  e(iuiptnont  dcHi^ned  to 
aPHist  that  production. 

ristd  and  Olrcttlatlaf  Capital.  -  Tho  Rn-ftU'r  lantlnR  power  of 
nuu-hiiuTy,  l.uiUliiiKH,  uic.,  ha*  U"l  f.oium.lKt*  to  .lUlliiKuiHl.  thU 
p(.rtl..ii  of  Capital  M  Flxea.  the  rHimlndtT  IhiIiik  .IfHlgimU^.l  M 
rin-ulutii.K  CapiUl.  Tho  lall.T  IixIu.U'h  all  partH  of  capital  thai 
art.  cnHuiiHul  at  a  MukU-  uh.-;  «  g.  tho  wool  im.-l  l.y  th«  HpliuuT. 
the  urahi  UH..d  by  the  miller,  tho  fuel  u«mI  for  tlu.  H.Kliif,  etc. 
On  thu  othrr  lian.l,  all  tooU  and  lii.ploni.iitH  b.-lonK  to  Fixed 
CapiUil,  on  tlu-  ground  that  th.-y  are  not  uh.mI  up  at  a  h1.i«Io  use. 
Tho  diHtliutlon  Ih  not  Important  cxct-pt  ho  far  m  It  boam  on 
tho  law  of  wagoM,  and  for  thin  purpone  It  U  far  front  covrrlng 
tlu)  whole  i.rin.-lplo  with  which  It  U  coinu-cU'd,  via.,  the  ultmeut 
of  Tlmo  111  production. 


I- 
i 
t 
t 
li 
k 
A 

0 

ai 
u 
hi 
tl 
di 

CD 

Wi 

th 

nn 


iroilui'ti  tho 
luitl  uiio 
ftiriiiH  of 
t.  Tliiit  i« 
Mitioii  thitt 
n;   it   it  ill 

icli    COimiNtl! 

u  liku,  tliu 
f  capital  in 
thij  ntliiir 
lildiiiKH  and 
vituldy  iiinl, 
nicri!  courHo 
iihor  of  tliu 
:  of  din^clly 
rovidin({  tiiu 
duHignud    to 


itlnn   power  of 

llHtliiKuiHli  thU 

di'HiKiiuU'il   ait 

<i(    fllliltlil    tlllU 

liy  iht!  Hitlnncr, 

K'lonn  to  Fixed 
at  a  hIiikIu  use. 
an  It  b»'arH  on 
:  from  covcrlnj? 
i\m.,  tilt!  ukuieut 


CI  lA  IT  Kit    viir. 

CAPITAL   nrPRRBRNTM   INDUHTItlAI.   IMPROVKMKNT8. 

1.   Th«   Capital    of  To-day   a    Legacy.      Tim    \mmmt 
Ki'iiomtioii    iiilitiriti-d    fmru    tlm   dh,!   jiMt   pft'coding   it 
tt    prodiH'tivn    nynUm    t'ljiiipiKul    with     tiiiiti<rialH    and 
nmiliiiuTv.       Till'     miiiin     Im     triiu     of     nvory     othur 
KfiiiTiitioii    rtf  iiii'ii    Hiiict)    tlin   dawn    of   liixtory.     Knch 
inlu«rit«'<l    (•n|»itnl    from   itn    iirt'dfccH.mtr.     'I'lu!    piopor- 
tion    of    cnpitnl    was     itndoul.ti-dly     Hinnilor    in    i-arly 
tinioM    than    it    is    now;     hut    our     nnawtorn,    as    far 
hack    ns    wu    know    unythin},'    of   thorn,  hail    induntrial 
knowh-d^n     and    <iipital     for     turning    it    to    m;cou!,i. 
Ah    nuMi'M    knowludgo    iniTcaHt'd.   and    improve  1    way« 
of     u»in«     the     productivt)      foncs     wcin-     invented, 
additions     hav«    iHum     matio    to    tho    world's     capital, 
until    it    iH   what   wo  fin<l  it.      To   thoso   who   already 
havi)    capital,    inorenHo    iH    compnratividy   easy.      With 
tho    old    took    mw    oncH    can    ho    made.       Ihit    how 
did    till)    progtmitorM    of  our   raco    judduce    their   first 
capital  ? 

2.  The  Beginningi  cf  Capital. -- Tho  only  answer 
wo  can  give  to  thi.s  qmvstion  in  to  consider  hrietly 
tho  circumstances  in  whidi  a  community  w<uild 
naturally    hwonw  posses-scd  of   capital.     Wu  must  sup- 

M 


i 


f 


IT 


6G 


JUiticiil    Jieommi/. 


\)oHii  8i)uu!  nicmlior  of  the  coiiimuuily  to  liiivo  diHroviiiud 
a  now  and  iKilter  way  of  gottiiiy  fi)od,  clothing',  or 
s(»nic  other  neodful  tliin-,',  —  which  Jiew  way  proMiises 
larger  returns  fur  luhor,  hut  at  the  expense;  of  wait- 
ing hjuger  than  hitherto  for  the  linished  product 
to"  appear.  Without  this  knowledge  there  would  he 
neither  motive  nor  room  for  the  existence  of  capital. 
Ik  the  second  place,  we  must  suppose  the  community, 
or  some  of  its  niemhers,  to  have  spare  time  and 
strength  left  over  after  providing  f(jr  their  daily 
necessities;  otherwise  they  could  produce  no  capital, 
since  the  production  of  capital  reciuires  the  expendi- 
ture of  labor  in  some  way  that  promises  no  imme- 
diate result  good  for  human  use.  In  the  third  place, 
they  must  be  diligent  and  enterprising  enough  to  use 
this  spare  time  in  the  manner  their  new  discovery 
suggests,  for  the  sake  of  the  future  benefit  it  promises. 

Given  these  conditions,  capital  will  inevitably  spring 
into  existence. 

3.  Capital  may  be  created  by  working  for  the 
Future.  — As  to  the  precise  mode  of  creating  capital 
in  such  a  case,  there  would  be  several  alt<3rnatives 
open.  It  may  help  to  clear  up  our  notions  regarding 
the  nature  of  capital,  if  we  consider  these  alternatives 
briefly.  Taking  as  primitive  a  case  as  possible,  let  us 
imagine  a  community  that  has  subsisted  hitherto  on 
roots,  nuts,  berries,  and  such  varieties  of  fish  and  game 
as  can  be  captured  without  laborious  contrivances  of 
any  kind. 


I 
1 

t 
t 
a 

P 
u 

Li 

ui 

sc 

of 

th 


to 

bfli 
Ian 
a  V 
the 


-.:.-u_i.ui-:Ln        ""  II     ■i.i.KHmWKWK.Mi""*""'-- 


/o  (liHCdVurud 
clntliiii^',  or 
my  inomises 
iiiso  of  wnit- 
\\vd  proiluct 
X    would    lie 

0  of   capital, 
cominunity, 

•e  tiiuo  and 
their  daily 
)  no  capital, 
the  expendi- 
!s  no  ininio- 
j  third  place, 
nough  to  use 
cw  discovery 
it  promises, 
atably  spring 

^ing^    for    the 

jating   capital 

1  alternatives 
ons  regardhig 
e  alternatives 
ssible,   let  us 

hitherto  on 
ish  and  game 
ntrivances    of 


Ifow  (Capital  mitji  hr  vtrritril. 


67 


SMj.posn.g   now   that  a    member   of   this  r„„„„,n.itv 
hy  I'api'y    m-cident,  .liscov.rs    the    superiority   of   son.o' 
particular     rout,    say     the     potato,    wh.n     grown'     in 
loose    soil,  i„   an    open    ph.ce   where    it    has    plenty  of 
sun    and    no    weeds    to    retard    its    growth,    over    the 
same    plant   grow.,    in    the    hap-ha.ard    way    of    wild 
nature.      To   n,  k.,    use  of   this   discovery   will   require 
imich   prehnnnary  labor   in   clearing  the   ground,  gath- 
ering   good    specimens    for   seed,    planting    them    and 
protecting  them  while  they  grow,  weedin-   etx) 

This  is  a  case  in  which,  I  Ll.i„k,  the"  work  would 
naturally   be   done   little   by   little,   in   the   spare   time 
left   over  after  providing   for  daily   wants.i      It  would 
naturally  be  tried  on  a  small  scale  at  first,  in  order 
to    bo    quite    sure    that    the    discovery    was    a    real 
advuntango,  _  worth    the     labor     of     putting    it    into 
practice:     As  each  successive   crop   showed   more  and 
more     conclusively     the    value    of     the    discovery     a 
larger  area   would    gradually   be    cleared   and   planied 
until  finally    the  raising  of  potatoes  became   a  re-nilar 
source  of  food  supply.     In  this  case  the  improvement 
of  the  land,  the    necessary    seed."  and,   h,   its   season 
the  growing  crop,  would  be  capital. 
If.  instead  of  an  agricultural  discovery,  the  new  idea 

'  We  may  suppose  the  daily  cons.in.ption  to  be  reduced  in  order 
to  gain  tune  for  the  now  work. -if  su.h  reduction  be  possible 

The  land  ,tself.  as  already  state.l.  is  not  Capital,-„ot 
bo^ng  a  product  of  hun>an  labor,  ny  the  "i.nprovenit  of  Z 
land  we  mean  the  changes  nmde  in  or  upon  it  by  labor  Jh 
a  v:ew  to  production:  for  example,  the  removal  of  tLs.  le;em ng 
the  hUlocks,  plowing,  fencing,  etc.  ^ 


68 


PolUicid  Econnmij. 


happened  to  bo  the  construetion  of  a  weir  for  capt- 
uring iish  by  the  How  and  ebb  of  the  tide,  the  same 
mode  of  procedure  would  bo  open.  Tlie  labor  of  con- 
structing the  weir-  could  be  done  in  whatever  time 
could  be  spared  from  getting  food  and  other  neces- 
saries in  the  old  way.-partly,  perhaps,  by  stinting  the 
consumption  of  these  things  in  order  to  have  more  lime 
for  the  new  work.  The  weir  would,  in  this  case,  be 
the  resulting  Capital.  Till  tinished,  it  would  of  course 
add  nothing  to  the  daily  food  supply. 

4.  Capital  may  be  created  by  Saving.  — It  is  obvious 
that,   in    both    of    these    cases,   the    man   making  the 
improvement    might    proceed     differently.      He    might 
begin  by  saving  up  a   supply  of   food   obtains  in  the 
old   way,   by   working  harder    and  perhaps   consuming 
less  than  usual,  in  order  to  be  able  presently  to  devote 
his  time  entirely  to  the  work  of   making  the  invprove- 
ment.     This   course,  however,   would  bo   less   likely  to 
be  adopted  than  the   other,  both   because  it  seems  to 
call  for  more   energy  and  self-denial   than   the   other; 
and  because  the  kinds  of  food  accessible  in  such  a  case 
as   we   are   considering,   are  hard   to  preserve   for  any 
length   of  time,  and  always  lose  something  by  keeping. 
If  it   should  be  adopted,  the   store  of   food  and  oth.^r 
necessaries   would    ordinarily    be    called    capital.     For, 
though  not  strictly  used   in   production,  it  is   accumu- 
lated for  a  productive  purpose.^ 

1  If  such  a  store  were  used  merely  as  the  means  of  living  for  a 
Ume  in  idleness,  it  would  not  be  Capital. 


I 

ol 
ei 
w 
of 

CO 

in 


>ir  for  capt- 
li",  the  saino 
iil)(»r  of  con- 
latever  time 
other  iieces- 
stintinj^  the 
/o  mure  time 
this  case,  be 
aid  of  course 

It  is  obvious 
making   the 
lie    might 
tainc  .  in  the 
is   consuming 
itly  to  devote 
the  improve- 
less   likely  to 
?,  it  seems  to 
in   the   other; 
n  such  a  case 
serve   for  any 
g  by  keeping, 
lod  and  oth(^.r 
capital.     For, 
it  is   accumu- 

18  of  living  for  a 


How  CapUiil  mity  he  created. 


69 


We  shall  see  later  that  in  an  advaneud  state  of 
society,  t!ie  more  common  mode  of  creating  new 
capital  is  by  tlius  saving  the  means  of  .sni.i.ort  f.,r 
laborers  in  advance.     Hut  it  is  never  the  sole  xxunh>. 

5.    A    Third    Alternative.  —  I  f.    instead    of    a    single 
producer,  several   pn.dueers  siiould    unite   to   make  tl.o 
uui.rovement;    or  if   the   single   producer   should   have 
dependents     or    slaves     to    assist     him.    still    another 
method    would    be    open.      Some   of    those    concerned 
could   devote    their   time   entirely  to  the  new  work  of 
creating   capital,   while    the   rest  provided,  by   the   old 
way,  enough  of  the   necessaries   of  life  for   the   whole 
number,   until   the   new    metlunl   of    producti.^ii    began 
to  yield   its    returns.      For   a   time    they    would    have 
to  work   harder   than   formerly,  or  consunie   less   than 
formerly,    or    both,    in    order    to    obtain    the    capital 
necessary   for  putting   the  new   discovery  or  invention 
into  practical  use.     Thus  the  creation  of  Capitiil  implies 
a  present  sacriHce  for  a  future  gain. 

6.  Capital  faciUtates  the  Creation  of  more  Capital.— 
If  the  new  contrivance  should  prove  successful,  it 
would  presently  add  to  the  productiveness  of  the  labor 
of  the  community.  Its  members  would  have  more  to 
enjoy  than  formerly,  without  working  any  harder.  They 
would  therefore  be  in  a  better  i,osition  to  take  advantage 
of  any  fresli  invention  that  might  occur  to  them.  They' 
could  more  easily  spare  the  labor  required  to  put  it 
into  practice. 

Thus,  every  step  in  advance  makes  every  succeeding 


T 


70 


J'ulUinil    Kmniiiiuj. 


„„,,,h,v„u.ul  inwMtionH.  Tlu!  iimkii.-  ui  Uw.  lirst  t.u.lH 
un.l  iuii'l<'in.-i.ts  i'vcr  iimdr.  in  the;  wi.il.l  must  Imv! 
U'MW  II  very  hI..\v  and  i-uinful  i.rn.-.isH.  — for  t<M.lfl  nro 
muMh'.l  in  niakin-  I.m.Im.  Men  n.nst  llavu  vvoikiMl 
lnn-;.^r  an<l  liard.T  t..  inakn  a  wnadKul  ax(!  <.f  .stuno, 
in  tlu!  s(M'alItHl  Htnn<!-a}j;u  nf  llu-,  world,  tlian  tlii^  now 
work  to  gi5t  a  wh(do  outtit  of  (-uttinK  to.dn  iiiadn  of 
Htw'l.  Not  only  so,  l)ut  it  must  liavi;  Inion  infinitfly 
harder  for  tlicin  to  Hparc  tinio  from  the  struggle  f(jr 
daily  food,  for  the  ])uri»oso  of  making  tools. 

7.  Civilization  and  Capital  — We  thus  see  that  in 
every  way  cai-itul  ami  eivili/ati(m  go  together,  and 
grow  together.  Increasing  knowledge  of  natunj  and 
natural  laws  eomes  with  the  expiirience  and  ol.scrva- 
tiou  of  successive  g.iuerations.  Tlie  ingenuity  of  men 
is  always  ready  to  suggest  c(.ntrivances  hy  which  the 
new  knowledge  may  he  turn(;d  to  account  in  producing 

wealth. 

With  rare  exceptions,  every  new  contrivance  de- 
mands a  larger  outlay  of  lahor  without  immediate 
return,  than  was  demanded  by  the  old  devices.  It  de- 
mands more  waiting  or  longer  waiting  after  the  outlay 
of  labor,  as  the  price  of  its  larger  yield.  Unless  men 
are  ready  to  bestow  labor  on  these  ttjrms,  the  new 
idea  remains  a  mere  idea.  How  many  happy  concep- 
tions have  failed  to  be  put  into  use  in  the  world's 
history,  because  no  man  was  able  and  willing  to  make 
the   sacrifice  of  present  ease  an«l  comfort  reciuired  for 


Jtou)  (.'itjiHtil  limy  hfi  Crciiled. 


71 


It    riiliition   to 
th(!  lirst  tndlH 

Id     IllllHt     liiivo 

-for  tdcilH  nil' 
hav(!  vvinkt'il 
(ix(!  of  Htono, 
hiiii  tli»'y  now 
tooU'  iiiatl»!  of 
bucii  iiifi>iit((ly 
c  Htiuggle  for 
dIs. 

IS  see  tliat  in 
together,  and 
ijf  iiatnn;  and 
L',  and  oliscrvtt- 
;<'iiuity  of  men 
liy  which  the 
It  in  producing 

;ontrivancc  de- 
out  immediate 
devices.  It  de- 
ifter  the  outlay 
I  Unless  men 
terms,  the  new 
'  hai)py  concep- 
in  the  world's 
willing  to  make 
)rt  recjuired  for 


<>ilro.li,ri„g  it.  we  shall   never   know.     I5ut  it  is  more 
than  prul,,il,l(,  that  then,  I,i,v.,  heen  many  such  cases. 

The  many  p(!<,p|,..s  of  tl..,  world,  whr.  arc  still  living 
in  poverty  and  harharism,  can  hardly  he  wholly  ignr.- 
rant.  all  .,f  th.un,  of  th(,  hettcr  vvny.s  ..A  pro,l,H.tion"de. 
vcl.,p,.d  hy  the  nations  of  Western  Kurope  and  America. 
They  luck  th(!  energy  and  self-denial,  rather  than  the 
knowledge,  icpiir.,.!  f.,r  the  creation  of  (Capital. 

8.   Two  Seti  of   Helpers.  —  From   all   this   it   follows 
that  two  s..ts    .,f   men    have   conterred   great  industrial 
I'onelits  on    their  fellow-n.en:    first,  the    inventors   and 
.hscoverers  who   have   sugg.;sted    new  and  better  ways 
of  production:   .S(!condly.   those    who,  by  their   willing- 
ness  to  labor   and  wait   for   their  return,  or   to   accept 
fiitun;    inst(-ad   of   present  commodities,  have  furnished 
the  means  of    putting   th.;se   improvements    into   actual 
operation.     The  work  of  the  inventor-the  i.lea  -g,K,s 
Jirst:   the   labor  an.l   waiting    required    for    j-utting   it 
into  practice   come   laf-r.     Koth  are  necessary  in  order 
to  give  us  the   blessing   of  easier  and   better  ways  of 
producing  wealth. 

It  may  perhaps  seem  strange  to  some  of  my  rearh^rs 
to  call  such  things  as  a  weir,  or  an  a.xe.  or  the  culti- 
vation of  the  land,  an  "improvement  in  production." 
Hut  unless  we  are  to  believe  that  men  were  cref^ed 
with  a  large  knowle.lge  of  productive  devices,  there 
must  have  be-n  a  time  when  the  ver^-  simplest  and 
•-ommonest  parts  of  our  present  knowledge  came  as  a 
new  discovery  or  invention. 


.* 


f 


CHAnEU    TX. 

TWO   CLASSES  OF   PRODUCERS:    EMPLOYERS   AND 
LABORERS. 

1.  Comparatively  Few  Meu  own  Capital.  —  Nothing 
has  been  said  hitherto  nbout  the  familial  division  t.t 
j.vodncers  into  the  two  classes  known  ns  Employers  and 
Laborers.  For  the  sake  of  simplicity,  1  have  si)<»ken 
as  if  every  producer  supplied  the  (.-apital  requisite  for 
carrying  on  his  industry.  We  must  now  consider  the 
highly  important  fact  that  the  enormous  capital  used 
in  production  and  exchange  belongs,  in  tlie  nuiiu,  to 
u  comparatively  small  number  of  persons. 

We  have  already  seen  that  for  the  production  of 
capital,  labor  must  be  spent  in  ways  that  promise  no 
immediate  return.  Capital  is  the  result  of  labor  and 
waiting.  Now  we  know  that  people  differ  very  much 
in  the  power  and  willingness  to  wait  for  good  things. 
To  the  eager  and  passionate,  such  waiting  is  nuu^h 
more  irksome  than  it  is  to  the  cool  and  sedate.  Some 
are  by  nature  careless  and  im'/rovident,  ready  to  "let 
the  future  take  care  of  itself";  others  are  naturally 
thrifty,  anxious  to  increase  their  possessions,  always 
willing  tc  forego  present  enjoyment  for  the  sake  of 
future  ad  vantage. 
72 


Two  VluHHf!t  of  ProduacH, 


73 


BR8   AND 

,  —  Nutliin{» 
division  tif 
ployoi's  and 
iiv«  wpokon 
•Cfjuiaite  for 
jonsidor  lh« 
■aiiital  usod 
10   nmin,  to 

■oduction  of 
promise!  no 
f  labor  and 
very  niucli 
^'ood  tilings. 
1"  is  nnicli 
date.  Sonie 
■ady  to  "let 
re  naturally 
ions,  always 
the   sake   of 


test      T         "  1      '"''■"""   ''"'^  ''"""  -l'"'"^'-  ^"  t''" 
t    t.     I  W.S.  who  an.  not  Willi,.,  to  work  for  u  di.st«nt 
object,  deel.ne  to   fullil   li...   c:on,liti..ns   on    whi,.|.   alone 
urge   returns   can    he   ohtaine.l    for   their   h.hor.     They 
.lo..n.  themselves  in  a.lvance  to  a  life  of  rude  poverty 
«uch   an  that  led   l.y  onr   native    Indians;  or   to  u  lifj 
of    dependence   on    whatever   other   .nen    ,nay    oiler   in 
exehun.e  for  lal.or.  as  is  the  ca.se  with  so  nmny  laborers 
ni  all  eou/itries.  ^ 

<>"   the   other   hand,   iho.se    who  have   the    foresight 

and  strength  of  will  to  meet  fairly  the  whole   burden 
..    cml.^ed  production,  who  are  ready  not  only  to  labor 
to  wai    as  long  as  need  be  for  the   enjoyable   re- 
ults.  are  able  to  win  the  largest  and  best  rewards  for 
heir  exert.on.s.      Not   only   so,   but   they  are   enabled, 
by  the  po.sse.ss.on    of   capital,  to   n.ake   gain    by  hirin. 
their  less  provident  neighbors  to  w..rk  for  them      Ouoe 
l.os,se,ssor  of  enough    capital   to   employ   even   a   sn.all 
'""Hbor  of  laborers,  a  man   is   usually  able   to  gain  a 
livelihood    without   further    manual  labor  on    his   own 
I«nt.     His  task  becomes  that  of  directing  and  controll- 
n*g   the   labor  of   other  men.      The  pos.se.ssor   of   hir^e 
capital   IS   even  able   to   relieve  himself  of  the  trouble 
of  managing  industry;   he  can  live   in  comfort  on  the 
interest  of  his  capital  by  loaning  it  to  employers. 

Ihe  familiar  diflerences  between  men  as  regards  care' 
for     he    future    are    therefore    of    great    consequence, 
socially   and   economically.      They  must    be    relied   on 
chiefly  to  explain  the  fact  that  some  men  have  capital 
wlule  others  have  none. 


74 


J'ulitiidl    Kronomij. 


Of  courst)  men  Imvtf  not  at  i\w  prosont  timo,  pornnim 
llii'y  luivo  lufvi'r  liud,  o<iual  opi/ortuiiititia  for  lU'ijuirinj^ 
ciipitiil  Homo  lmv(!  iiihi'rit(!<l  wi'iilth,  while  (itluns 
Imvu  iiilicriti'd  ntithiii;,'.  In  tliw,  tw  in  otluir  niHiicclH, 
tlm  Mlinitittniiiiys  nf  tlie  ffttherH  nro  visited  uixin  i\w 
oliildrt'n.  Tlio  ntiui  who  1ms  iuhcritod  ovon  a  littU! 
can  iidd  to  it  iiiort!  oasily  tlian  the  man  who  has 
nothinj,'  can  accjuiro  tlu)  l)t'),'iiinin},'s  of  aipital.  It  is 
thu  liist  stops  that  an;  hard. 

Yet  wi!  may  safidy  huliovii  that,  apart  from  mis- 
fortinu!,  tho  <:ases  aro  rare  in  our  country,  in  which 
diligence  and  thrift  wonld  fail  of  winning  some 
amount  of  capital.  Tho  chief  ohstaclo  is  lack  of  will, 
the  natural  inclination  of  m  )st  men  to  consider  tho 
present  rather  than  the  future,  and  to  work  only  in 
such  ways  or  on  such  terms  as  promi-so  siujody  returns. 
Though  well  (I ware  that,  by  adding  the  sacritico  of 
waiting  to  the  sacrifice  of  labor,  they  might  presently 
increase  to  nn  indefinite  extent  the  rewards  of  their 
industry,  they  make  no  attempt  to  avail  themselves 
of  the  opportunity. 

I^t  us  bo  clear,  once  for  all,  that  the  richest  man 
is  under  cojistant  temptation,  just  as  the  poor  man  is, 
to  spend  his  whole  inconie  in  immediate  enjoyment 
instead  of  turning  it  into  capital.  It  is  only  by  resist- 
ing this  temptati(m  that  anybody,  rich  or  poor,  has 
ever  ac«|nired  or  maintained  capital.  Those  who  resist 
it  successfully  are  our  capitalists. 

2.  Distinction  between  Savings  and  Capital  —  Tho  fact 


1 


im«,  pernnim 
)r  lU'ijuirliij^ 
I'liilo  otiuns 
lor  roHpoc'tH, 
'd  ui><)n  thu 
von  II  littUi 
II  who  liiis 
pitul.     It  is 

;  from  iiiis- 
y,  in  wliicli 
iiiiiig  somo 
liu:k  of  will, 
Kon.sidor  tlio 
ork  only  in 
L!0(ly  nituiiiH. 
sacritico  of 
lit  presently 
•(Is  of  tliiur 
1   theinsolvos 

richest  man 
poor  man  is, 
3  enjoyment 
ily  by  resist- 
)r  poor,  1ms 
e  who  resist 

I  — The  fact 


Sninga  and  Ctipit„l. 


75 


uathen^ 
f  r  the  hna  produets  of  their  lahor.  haa  an  in.portant 
;'"-t  on  the  n.o.le  by  whiH.  those  who  .|..,sire  to 
l"tve  cai.ital  ,„ay  set  ahout  ohtainin«  it.  The  pn-s- 
«nco  of  laborers  rea.ly  to  work  for  wa^.-s  n.ak's  it 
l-ss.ble  to  aciuiro  workin«  capital  in  return  for  n.ere 

t..  buy  („ushe.l  connnodities.  Thin  i.  therefore  the 
conrse  nsually  followed  i„  j.^aetiee.  The  -p..,...,,  do- 
«|nn«  to  possess  ,.apitfll  saves  his  inconu-  or  borrows 
other  mens  savings,  and  nses  the  an.onnt  so  obtained 


Ml 


i'"yi"«  wayes  to  laborers  for  produeing  the  desired 

*;'.r  this  reason  it  is  common  to  speak  of  savings  as 
caiutal.     ,n.t   .a,,,d   j,    u.e   e,uip...ent   for   produein. 
and  exehanKing  eon.n.o.lities ;  it  is  the  neeessary  n.eans 
or  eHe<.t.ve  u.dnstry.     Savings,  on  the  other  hand,  are 
tlH)  completed   resnlts   of  production   and   exchan...  - 
;-;"""-'''t.-es  (or  the  n.eans  to  bny  conunodities)  ^h'i..,. 
I";  owner  chooses   not   to  consume    but   to   spare   for 
"n...   laborers.      When   turned    over  to   the    laborers 
hese   connnod.ties   arc   not   nse.l  to  assist   pro<;,...tion 
thy  are  consumed  by  the  laborers  an.l  their  fan.ilies 
just^  as  they  might  have  been  consumed  by  the  original 

of^Lr.'''"'-''"'"^"  ""^  '"''•'^'''  "^  ^''  ^  "«^«««ity  ' 

point  of  vaew   of   the   employer;   i.  to   regard  the   la- 
borers   not  as   men  but  as  mere  animals   for  use    a 


70 


ihlilknl 


\  i.Klurtion,  ftiiil  ih'ihIIiik  to  Ui  fud  nntl  rlothi'il  by 
iitlior  iiu'ii,  ill  ordttr  lliut  thity  may  ki  ubh!  tu  wtuk 
cHmlivcly.  Nn  iiiuii  can  Im)  uii  uiii|iluyt«r,  in  tli«; 
pnwuiit  Hi'iiw!  i>f  tlio  wortl,  witlmut  tint  umi  u(  uaviiigH. 
Uiit  cnjiital,  iiM  wu  liiivo  ulriiiitly  wioii,  c:hii  Im<  iirtHlmistl 
without  tike  iiuouNDity  <>{  goniu  luuii  Having  in  onlur  to 
jHiy  (»tli<'r  IIU'II  wiiKt'N. 

It  in,  Htrictly,  only  for  the  |>ayim'iit  of  W(im>H  in 
ttdvnnc'u  oritnMliictiun  that  miviiiKi  "F"  lU'fuHsnry.  In 
order  that  Honio  niun  may  hnvo  wnge«,  otht-r  mon 
nindt  Havo  tho  moans  of  I'uying  tlioiii.  In  othor  words, 
if  Hoiiit)  men  must  hnvo  ii  reward  for  their  labor 
Hooner  than  production  yi^'lds  it,  tlien  otlu-r  nu>u  nmst 
iMtHtiioMi)  tlio  eiij(»ynu'nt  of  tlu'ir  revviird  Injond  ihti 
point  lit  wliicli  pntdiuaion  yields  it.  One  man'-'  wages 
can  only  come  from  aiiothi  r  nian's  savingn. 

But  there  in  Huroly  no  nccoMHity  or  reason  in  tho 
nature  of  production,  why  the  burden  of  tlie  necessary 
waiting'  Mhould  be  borim  by  dilVerent  iktsoiih  from 
thoHo  who  iierform  the  labor.  That  is  rather  a  conso- 
(luenco,  originally,  of  tlie  very  uuetiual  degrees  in 
which  uit'u  are  gifted  with  the  readiness  to  work  for 
future  advantage,  — partly  also,  now,  a  natural  conse- 
quence of  the  existing  inequalities  of  wealth. 

As  ca[)itnl  is,  in  practice,  usually  provide<l  through 
the  savings  of  tho  few,  no  serious  nrrr)r  is  likely  to 
orise,  except  in  treating  wages,  from  confuunding 
savings  with  working  capital.  It  is  customary  to 
speak  of  "saving  capiUil,"  and  we  may  safely  enough 


"1 


Th«  Jtntit  0/  Wnye-pnying, 


77 


clotluMl  by 
bU\  to  wmk 
)wr,    111    tlie 

)   Uf    MVillKH. 

bo  iiriHluteil 
ill  oritur  to 

if  wn^t'H  ill 
\i'uH«nry.     In 

ottior  mull 
othur  worilH, 

their  labor 
T  laon  iiiust 

1k')  ond  iht) 
tiiiur->  wages 

niHoii  in  thu 
,hu  nt^cessary 
K'i'Hoii8  fruui 
LhiT  a  C0118O- 
(It'gri'i's  in 
to  work  for 
itiual  conae- 
Itb. 

idtnl  through 

is    likely  to 

confi/iinding 

jH.stoinary    to 

nfoly  enough 


follow  thu  «..ticrnl  ii-iagfl,  MiMh'rHtan.lin«  tho  phraso  im  a 
short  uxpruHsiun  for  "mivinK  thu  invai.^  to  j-ay  IuImt- 
iivn  for  pruiliii'iii)^  ra|iitii|" 

3.  Inotdental  Raiulta  of  Wage-piylng.  -  It  jm  of  v^mm 
m  III-  n.iliir-  .if  w.iikmy  fur  wa-..s  il,„i  thu  |.rodiirt  „f 
tho  labur  b,.|oi,;{s  to  thu  uin|,loy,,r.  Th.it  is  thr  basis 
of  thu  bargain.  Vut  m.iii«  iH-rHunH  talk  and  writ.-  ««  if 
thu  Irtbon-r  hud  Htill  u  ivsurvud  claim  u|Hin,  or  a  ri«lit 
of  Homu  kind  in.  th.-  |.io.ln.t  of  hiM  labur.  All  mv\\ 
ft«Num|itiuMM  arn  fonlish  and  vain,  -a.s  foolish  and  vain 
n»  it  wonid  li..  to  nr-,'11.'  that  th.'  person  s.-lliiiK  a  rom. 
modity  has  a  right  both  to  thu  thing  .sold  and  to  thu 
thing  ho  rucuivus  in  uxrhuiigu  for  it. 

Uiidor  tho  «y«tum   known  m  "  Prolit-Sharing "  thui-u 
is  a  right  oxpru,s.sly  rum-rved  to  th,.  hd.orurs  of  Hharing 
ill  niiy  profit  that  may  bo  inadu  buyoml  a  curtain  lix.-d 
rate.     Hut   this   in   not  a   aiinph-   casu   of   w.irking   for 
wugu.1.     Tho  iimimgur.  in  profit-Hharing,  ngnvs  to  ,«,y  in 
advaii.u  a  curtain  ninount,  prosunmbly  loss  than  thu  cur- 
runt  rato  of  wagua,  ,,iid  a  further  Hum,  j^ruatcr  or  Iuhs, 
at  tho  dosu  of  tho  year,— tho  prociso  amount  to  dc'iM-nd 
on  tho  succes.s  of  tho  bnsinuss  in  tho  moniitiiiiu.     This 
arrangumont  does,  by  inference,  give  thn  laborurs  a  r<'- 
survud  claim  upon   tho  product,— a  right,  for  example, 
to   objoct   to  any   course  that  should    le.ss(;n  its  value. 
lUit  in   tho   ordinary  raso  of  hiring  for  wages  there  ia 
no  such  right. 

A  second  result  of  wngo-j^iying  is  that  the  employer 
bears  all  the   pecuniary  risks   of   production.    The  la- 


78 


Jhlitinil    Kfommy. 


hurura  K"'-  l''"''  wnjjim  wln'tlier   Iho  ciitorprliio   liiriii* 

out  woll  iir  ill.     ViH  tl iiipluyt-r  thorn  U  ulwnyn  moiiui 

rink  of  Inxiiig  hiiH  Haviii;<>t,  'i-Nptuiall}'  «»i  iit  tlu'  imi- 
(liii'tidti  of  tliiri(;N  tliut  uro  at  uU  Huhject  to  huiIiIiii 
('liitii({(!  <>t  UiNto  and  fuHliioit.  IIu  kiiny  tiiiil  that  hi)  haH 
|iriKlutiul  ihti  wrmin  nrlult!,  or  tho  wrong  variety  <'f  it, 
otul  may  (ind  no  ImyiTH  for  i>iN  pnMluct  MXCfpl  ut  a  \om. 

Thorn  in  u  fiirtlit-r  rink  of  Iomh  to  »Mn|ihiy«!rH  hy  tho 
ovcrpriMliHiion  of  any  i>artit'uhir  coniuiotlity.  A  fow 
lirodiKTrM  «.f  any  article  havo  tho  jMtwur  to  l>ririg  tun- 
barraMMini'iit  ami  hwM  on  ull  i»rutlucorH  of  it  by  nukloHs 
incnmHc  of  tho  Hinijily. 

IFmlor  tho  Hystcm  of  itroducing  only  to  fill  orders, 
which  in  common  in  «omo  branches  of  mannfactnring, 
thcHo  rifiks  nrc  aNNumcd  by  tlm  capitaliHt,  merchant,  or 
doalor,  who  ;^ivc«  tho  order.  Tin)  risk  undor  this  plan 
in  pndnibly  lossencd,  sinco  tho  doalor  has  hotter  opiMir- 
timitics  for  watching  tho  tondoncioM  of  tho  market 
thou  tho  manufacturer  has.  Hut  tho  rink  can  never 
be  wholly  done  away  until  a  plan  in  doviHed  by  which 
thiiigfl  may  be  produced  only  in  responso  t<»  orders  from 
coiiHumcrH.  It  is  needlesH  to  aay  that  such  a  plan  iH 
very  unlikely  to  Iks  devised. 

Al»art  from  tho  general  risks  attending  all  produc- 
tion under  division  of  labor,  some  industries  havo 
BjK'oial  risks  of  their  own.  Tn  farming,  for  instance, 
there  are  dangers  from  unfavorable  w(!ather,  tho  at- 
tacks of  destructive  insects,  etc.  In  mining  there  is 
danger  from  tire,  exhaustion  uf  the  deposit,  etc.    In  the 


•f-^^m\.U'.i\.-»-i'  ■ 


A,h'nHt,„Jt»    0/  thr     ir„ff,M    S>ftt,M. 


70 


rpriao  lurtiN 
ttlwayH  Moiiui 
iit  i\w    \>ut- 

',    to    flUllllull 

thilt  lit)  Itnii 
/arit'ty  of  it, 
il  lit  a  loRM, 
i)'»!r»  Ity  tlin 
ly.  A  few 
,(i  brini;  cm- 
t  by  nuklosa 

»  fill  orders, 

iiinfitctiiriii^, 
iiittrc'lmtit,  or 
lur  tills  ))lun 

H'tttT  njijMjr- 

tho  marki't 
k  cnn  never 
•d  l»y  wliii'li 

ortlers  frnm 
ch  u  [iluii  IH 

all  pnuluc- 
ii8trie8  Imvo 
for  iiistftiioo, 
,her,  the  at- 
iiig  there  is 
etc.    la  the 


..« m.r«  turn  of   «„„,H.w.|,.,   ui..r«    I,   ,Hm«t«„t  .l«„«„r 

"'  ' y  •'•^»''-'""-     ''••'-  ri.k..  ,0  far  „«  tli.y  uH^.t 

pro|K.rty.  „r..  [.,„,«  hy  the  .«i.,,.|..v..r  ^ 

4   Advantag..   of   th.   W.ga,    gy,u«.      ,u   the  ..,„. 
!'l.')"r    U.arH    th«    ,^.n,nlary   ri«k«   of    pm.lueti ,.,.., 

':,  "'"'"'"'  /"'^; ""'-l.te    direction    of   tl.«    hu- i,  J 

Wherever   tl.„   hU.orer.  eve,,    if    ..,,,ied   with    ea    1 1  ." 
«ro   too    i«„,„,„.t   to   ...uuHKe   the    work   of   ,.n.d..,  ti.,n 
or  to  ehoo^e  ..niei..nt  ...anagers   to  aet   for   ,h..,„.   the* 
ntn     of  a  wi.e   ..„,,l,,ver  Is  undoubtedly  an   a.lvan. 
«.'    U  all    ooneerned.     It    prevent.    waMe    of    |..bor 
.rouK     short-.,hted  and  ineiUHent  n.ode„  of  ..oduJ 
t .....     [„   tIio««   i.,.h...trieN   that  nee.l   tl.o  joint  action 
-f  I"r«o  Indies  of  hihorer.  the  .,..„.„,,„  ,•„,:  ;  ^ 
»•  "l'I'.)'«r  aro  particularly  i,..po„n,.t.    L.l.rers  have  no 
"Iway.      ad    the    edueati....   a.id    training    ,hat    wo  I 

:i'';'l'f>;tlie..>evonforchooHi,.„wi„odirLrHin      c^ 
'"•'-^'-.- to   .say    nothing   of   their   .hility   to 

';;" '  •'•;  '"'"'"'^  •l"-tio,i.s  ..f  g«,H.ral  la.«i..e«H  polUy 

t  may  therefore  ho  taken   f..r  „rant<.d  that,  so  \n  L 
r.'«nrd,s    he   n.,..  ,ne«tiM.   of  n.n..aKen.o..t.  the  wa.-s 
«y«teni      a.s    heen   g..,.erally    favorable,  i,.    the    past  \ 
wse    and    effic.ont    direction    <.f    all    larg.,    i..h,.st.ia, 

AK«in.   11,,,   „,g ,n,  „„,,   ^,,  ^^j 

..    Ia«,r  „„„„r  tl,„  »„,,.,  .,.,,,.,„  ,-,,  „  „,„„  ,„,,,„„ 


-J 


tf> 


80 


Politirnl   Econovxy. 


tlioy  iin;  tn  i(!Oi;ivo,  iuul  when  tlioy  are  to  icct'ivu  it. 
Tliey  can  then  arrange  their  scale  of  expenditure  on 
a  safe  basis.  Any  risk  of  delay  in  receiving  their 
earnings,  or  any  uncertainty  as  to  the  amount  to  he 
received,  is  burdensome  in  such  cases. 

Another  great  and  ol)vious  advantage  of  the  wages 
system  is  that  it  provides  the  whole  labor  force  of  the 
country  with  abundant  capital.  The  amount  of  capital 
available  for  eiich  labonu-  is  made  as  great,  not  as  the 
laborer  himself  would  have  made  it,  but  as  those 
would  have  it  who  are  most  able  and  willing  to  save. 
The  labor  of  the  man  who  owns  no  capital  is  thus 
supplied  with  a  full  equipment  of  the  most  effective 
devic(;s  for  increasing  production. 

The  resulting  increase  of  product  goes  mainly  to  the 
hired  lidiorer  himself.  The  gains  of  the  employer  are 
easily  reckoned,  being  the  diil'erence  between  his  pay- 
ments and  his  receipts.  But  the  laborer  who  has  no 
capital  of  his  own  is  the  great  gainer  by  the  wages 
system,  though  his  gain  is  less  easily  measured  than 
his  employer's,  and  is  often  quite  forgotten. 

In  order  to  tell  how  much  the  laborers  of  a  civil- 
ized country  are  benefited  by  the  savings  of  otluir 
men,  we  should  need  to  know  how  much  they  could 
produce,  with  little  or  no  capital,  if  thrown  entirely 
on  their  own  resources.  We  can  only  be  sure  that,  in 
comparison  with  even  the  lowest  wages,  the  amount 
would  be  small.  The  whole  excess  of  wages  above 
what    could    be  so  produced    is  a  clear    gain  to  the 


1 


I  rcct'ivu  it. 
lendituro  on 
eiviiig  their 
lount   to   be 


f  the  wagOR 
force  of  the 
lit  of  capital 
;,  not  as  the 
lut  as  those 
ling  tc  save. 
)ital  is  thns 
lost   efl'cctive 

iiainly  to  the 
employer  are 
3en   his  pay- 

who  has  no 
ly  the  wages 
easured  than 
11. 

rs  of  a  civil- 
igs  of  othtiv 
li  they  could 
■own  entirely 
sure  that,  in 

the   amount 
wages  above 

gain   to   the 


Di'Si'vis  of  the   Wiujen  Suslrm.  fij 

laborers  from  bein"  liirod      T-  ,-a  „  i       i-. 

ii         „  "  "irLci.     ii,  ,g  a  benefit  accni  ii<r  in 

i.o„.  fro,,,   tl.   ,,reso„™   „f  -apital   which   th       t 
done  notluns  toward.,  ncuniuhtiii... 

lo    .1     he    hiloror    it   ia    „„tavor„l,|.,    t„    ,.„i„i„,„.,. 
il.o  h„.d     .,„„.er  has  ,.„  Ui-x-ct  and  „„,.„„„,  , 

"-    l.rod„ct„f    hi„    labor,     Any   i,„,„e,|iat/;   ; 

goes  to  the  em,,h,yer.    The  s„,„e  i,  tn.e  of  the  U-n.u 
mmg  fro,„  „„y  ,„,„,  i„  ,„.te,,„,,  „,  „„„.„„,,  ^ 

"■Kl  tenr  „f  „,„„hi„ery  and   l.oildu,..,.    The   himi 
-,■   lael.   the   ,„.«.^    ^ 

.^..J,.slahorandtotn,.„e™,thin,.t„,thohest 

WhiJe,  therefore,  the  wages  system  has  nndonl.tedly 
been    tavoraWe    to    ellieieney    „n,l    f„r.si,.h,e,h,ess    i^ 

anage,„e,.t    it   depends    too    ,„„eh   „„     ,,e    prcsen  " 
and  watchfnine.,  of  the  .nanager.     The  "hireliL" 
a  ways   been    proverbial    for    slackness    in    hi,",,," 

d«et  of  the,r  labor  ,s  to  be  their  own.    The  eye  of  the 
verseer  cannot  be  eve^-where.  and  even  i/it  eo 

be   It  ,s  a  very  poor  snbstitnte  for  the  active  spnr  of 

slf-n,to.est    urging    «,    ,v„rker    wh„    ,„„,,    ^"J;   ' 

product  as  his  reward. 
Tlie   adoption   of  "piece-work,"   or  pnymont  accord 

-g  to  results,  acts  to  some  extent  as' a'  co^l^^o; 


82 


J'oUiitnl  Knnumi/. 


this  ovil.  Hut  thiH  plan  puts  tli.^  wnrkiimii  nudw  a 
Htroii-?  temptation  to  do  hi"  work  in  a  po..r  and  iianty 
manner.  Kx(Ti)t  in  th«  few  iinluHtritis  wlunv  d.!f(!(:lH 
of  worKniunsliii.  are  rondily  ubscrved,  thiH  j.hm  is  nn- 
suitablo.  hike  tho  system  of  paying  by  the  (hiy.  it 
depends  too  uuich  on  the  eye  of  the  niannKer.  'Hui 
workman  has  no  i.ersonal  interest  in  the;  jroodness  iind 
vnhie  of  his  product,  nor  in  economizing  the,  materials 
und  machinery  used  in  prodncin*,'  it. 

Since  the  emph.yer  owns  tho  product  ho  at  least  is 
interested  in  having  it  as  great  and  excellent  as  ])os- 
sible.  But  it  is  another  defect  of  the  wages  system 
tliat  even  the  emph)yer\s  interest  in  produ(;tion  is  not 
of  the  simple  and  stimulating  kind  that  si^es  in  the 
product  a  reward  for  tho  labor  of  producing  it.  For 
him  the  product  is  not  a  rewaid  of  labor,  but  a 
return  for  savings  paid  out  in  getting  it  made.  His 
motive  is  to  make  profit,  not  to  get  wealth  pro<luced. 
Take  away  the  chance  to  make  profit,  and  he  will 
cease  to  carry  on  production. 

Now  the  employer's  chance  to  make  profit  depends, 
at  any  given  ^ime,  on  the  price  at  which  he  can  sell 
the  product.  A  fall  of  the  price  may  cut  off  his 
profit  and  thus  leave  him  no  motive  for  going  for- 
ward. When  this  happens  production  comes  to  a  stand- 
still, unless  the  laborers  are  wilhng  to  work  for  less 
money.  As  they  commonly  are  not  willing  to  do  this, 
strikes  and  lockouts  follow,  — with  resulting  loss  and 
bitterness  for   all  concerned.     These    disastrous    inter- 


y 

d 

ta 

I" 
\v< 

111' 
Fc 
n  1 
oul 
jiic 

acq 
its 
ex  a 
twii 
add 


QurHliouH  and  Ji, 


ii'iineH. 


m 


mill    iiiitliT  II 
or  ami  luiHty 

\lllMt!     (llifliClH 

I  ]iliui   is   iiii- 

thc   (liiy,   it 

laiinK''!'-     'I'J't' 

t;(l()(llK'KH   (intl 

tilt'.  niatiiiialH 

he  at  least  is 
cUtiiit  as  ])()«- 
waj^fH  syKtc.m 
liiction  is  not 
t  s(!es  in  the 
.icing  it.  For 
labor,  lint  a 
it  niado.  His 
altli  I'VoUuced. 
,   and   he   will 

profit  depends, 
jh  he  can  sell 
y  cut  off  his 
for  going  for- 
mes to  a  stand- 
work  for  less 
ing  to  do  this, 
ilting  loss  and 
sastrous    inter- 


rnpt.onH  of  i,„l„.Lry,  instead  of  deereasin^  with  (|„. 
.s|.n.-ad  of  ,.d„.ation  an.o„,,  the  n.n.s,sr,,s.  „..„.  ruth.-r  to 
'neniaso  in  number  and  intensity  as  (i,.,.  ^.,es  on  No 
;"vnu,  has  yet  been  .li.scovered  fur  pr.ventin.  then. 
Il««yare  an  evil  .onunon  to  all  forms  of  wage-payi,,.  " 
It  will  Im.  .onvenient  to  def.r  our  .ii.srussio,,  "of 
wa^-s  an.l  prolits  until  wo  Imve  conside-red  the  priiu.i 
I'Ics  g.,verning  the  value  of  eon.n.oditie.s  in  exchange. 

QUESTIONS    AND    EXEH0ISE8. 

I.   How  do  you  Bhow  that  tho   LuhIiicss  of  mercha,.t.s   \,  to 
inanagf!  (ho  cxchangn  of  prwliintii? 
:.'.    In  what,  S.M....  is  il  truo  .l.,a  all  w.-alU,   is  .../„/,    shouM 

you  g.vo    he  ,.a,no  of  wealth  to  ru.u'/  to  ^uack  .„..lici„..sl'  to 
in  me  noviM.s? 

J.   Should  you  giv...  the  name  of  wealth  to  a  goo,  1  voiceV  to  a 
tale.:t  for  ac  „.g  on  ih.  ...aguV  to  great  physical  strength?    Wl.v" 
4    What  Ls  Natural  Wealth,  and  how  is  it  related  to  wealil. 
l..-o.]:.3ed  l.y  labor  ?    (iivo  exan.ple.s  of  each  kind  of  wealth. 

wealtli.  AMiat  ill.;strations  can  you  give? 
J.  What  is  meant  by  Production  ?  Can  you  always  tell  .,y  the 
..ore  name  of  a  thing  whether  it  is  a  product  of  laln^r  or  not? 
•or  example:  if  yon  were  asked  whether  a  tree,  or  a  lower  or 
hcrr>',  or  a  parrot  is  a  product  of  labor,  could  you  answer  with. 
out^Knownig  particulars?    How  as  to  books,  coats,  houses,  and 

7.  In  what  circumstances  does  any  kind  of  natural  wealth 
acquire  a  value  in  exchange  ?  Is  a  nation  enriched  1,-  the  fac  of 
.ts  na  ura  wealth  acquiring  an  exchange  vahu-  Suppo  r  fo 
;-npIe  the  land,  coal  mines,  etc.,  of  the  Unite  1  .State'Tc'a  1 
t.  ce  as  higl.  ,n  value  as  they  are  at  present,  would  this  of  itself 
add  anything  to  the  wealth  of  the  people? 


1^ 


84 


JUitind  Kmminy. 


H  Is  it  ix)RHiblo  for  any  person  to  grow  richer  J.j  reason  of  Urn 
d..Htruct,i..«  of  natural  w.Miltl.V     If  so,  wl.at  is  the  prcci..  source 

of  ills  gain  V  .,,,*.. 

1)  Did  I'rpsi.l.-nt  Lincoln's  proclaination  of  fnmdom  for  llio 
Hhm-s  nuike  any  class  of  i-rsons  r-oror  tha..  ti..^  were  before  V 
If  so,  .lid  it  .li.ninisli  tlw;  vvallh  of  the  United  States? 

10  Why  does  land  .liffer  more  in  value  in  diiferent  plac<;s  than 
cotton  ch.th  aoesV  Do  you  see  any  reason  why  tind.er  should 
.liffer  more  widely  in  .lifferent  places  than  silk  V  Any  reason  why 
green  vegetables  or  fresh  iisli  should  differ  more  than   tea  or 

sugar  V 

11  Why  have  rivers  and  natural  harbors  no  exchange  value, 
whereas  canals  and  artificial  harbors  have  a  value  in  exchange? 
Would  it  be  true  to  say  that  streets  and  higliways  have  exclumge 
value,  as  streets  and  highways?    How  as  to  railways? 

lo    Are  n.ortgages    and    railroad    bonds  to  be    regard<;d    as 
weaUh?    How  as  to  railroad  stocks?    When  a  man  buys  a  rail-  - 
road  bond,  or  a  share  of  railroad  stock,  just  wiuit  does  he  buy  i 
Suppose  a  railroad  pays  no  dividends,  is  it  wealth?    Is  a  bank- 

note  wealtli? 

i;5.  Illustrate  by  example  in  your  own  neighborhood  the  dis- 
tinction between  Capital  and  other  wealth. 

14.  What  three  classes  of  things  constitute  the  capital  of  a 
community?    Give  examples  of  each  kind. 

15.  A  watchmaker's  stock  of  watches  arc  part  of  his  capital: 
does  it  follow  that  all  watches  are  capital?  Is  there  any  kind  of 
wealth  that  can  never  be  capital?    Any  kind  that  is  always 

^^^le." Explain  the  ra'.nark  that  "Capital  is  perpetually  under- 
going transformations." 

17    If  you  were  asked  whether  paper  is  capital,  why  could  yc 
give  no  definite  answer?    Should  you  have  the  same  (nff\culty 
the  question  were  asked  in  reference  to  coal?    Pig  iron  ?    Race^ 
horses?    Printing  pap,r?    Mill  :nachinery  ?    Uninproved  land«? 


0 

t 

li 
v 

li 

ti 

cr 


mi 
th. 

IIK 

slu 

ino 

mo 
of 


QucHtions  and  Kjcercisen. 


85 


ij  reason  of  llio 
jtrccihc!  siturco 

iiMidoiii  for  I  lie 
•y  vvure  bi;fore? 

tt-H? 

•eat  j)laci!s  than 
r  timber  slioiilil 
Any  reason  wliy 
re  than   tea  or 

exchange  value, 
le  in  exeliuiigeV 
1  have  exelnmge 
Iways? 

be    renar<h!il    as 
man  buys  a  rail-  - 
at  does  he  buy  V 
1th  Y    Is  a  bank- 

borhood  the  dis- 

the  capital  of  a 

■t  of  liis  capital: 
there  any  kind  of 
I  that  is  always 

«rpetually  under- 

il,  why  could  yc 
same  (jiff'tculty 
Pig  iron  ?    Race- 
niinproved  land*  ? 


I'l-ughsy    Turnip  seeds  V    Could  you  answer  with  certainty  in 
imy  of  thesf!  cases V    Why?  »""y  m 

IH    What  chcunKstances  detern.ino  the  productiveness  of  labor? 
..lilies  """'""       "'  """'  '"■"'"''*'"  ""*"  *''"*  °^  '""«'  """" 
1!'.   Illustrate  the  distinction    between    Productive  and   Non 

"'"•  •     I'-luc  .ve   nor  wholly  n..n.productive.     To  which  das, 
..ud  you  as.s.g„  each  of  the  foHowing  labors.  nut-gaUuM  Z 
'•"|l.l."K  toy-boavs;  n.aking  fire-crackers,, i.hing  f„r  .sport;    2 
.  sn.g  ,n  a  gynn,asiun.;  playing  ,„,,,  ^li ;  the  «,u.ly  „f     ,usic- 

M^nk-teller;  o,  a  tailor's  apprentice;  ol  a  merchant;  of  an  in- 
venter ;  of  a  .loctor ;  of  a  poHcen.an .  of  a  jailer  V  I.  tl  e  fact  that 
labor  ,s  paid  for  u  proof  that  it  i.  productive  ? 

-'0.   In  what  ways  u.ay  capital  be  created  ?    How  do  you  dis- 
tinguish between  Savings  an.l  Capital  ? 

22.   Why  are  the  Indian  tribes  of  the  W^est  usuallv  so  poor? 
-3.   How  do  you  account  for  the  fact  that  compai-ativ ly  few 
men  own  capital?  *     ""v.iy  itw 

24.  Mention  the  chief  industrial  consequencea  of  the  fact  that 
the  mass  of  producers  work  for  waffos. 

u'tJ^  i;:««^«  -*1«  by  hiring  laborers  can   be  accurately 
should  you  express  the  laborer's  gain  from  being  hire.l? 

niotv  tZ  rr  "'"'^'  ""'""*  '"'  "*'""««  •"  "'«  '''"""''t  of 
money  the  laborers  receive? 

27.   Explain  the  remark  that  •<  fhe  more  a  nation  saves   the 
m..re  i   can  produce."    Do  you  think  of  ..y  Unnt  to  thohlL 
of  production  through  increased  saving? 


I 


CIIArTEU    X. 

OF  VALUE  IN   aXCHANOB, 

1.   The    Distinction    between  Value    and    Price.  —  W« 

must  u(»w  cuusiilor  the  primiiduH  <,'(iv('riiiiig  tlu!  viiliu; 
f»f  ciniinuHlitics.  Tht;  first  thiiiy  to  lie  done  is  to 
make  sure  that  we  see  clearly  what  is  meant  hy  the 
value  of  nil  article,  and  how  its  value  diH'ers  from  the 
price  of  it.  The  price  of  a  thing  means  the  amount 
of  moniiy  it  exchanges  for:  the  value  of  it  means  the 
amcmnt  of  any  and  every  other  commodity  it  exciianges 
for. 

The  value  of  a  thing,  therefore,  includes  the  price 
of  it.  The  price  is  simply  one  example  or  instance  of 
its  value;  the  instance  that,  by  frequent  use,  is  most 
familiar  and  expressive  to  us.  In  speaking  of  value 
we  compare  each  commodity  with  all  other  commodi- 
ties ;  in  speaking  of  price,  we  compare  it  with  the  one 
commodity,  money. 

Money  gives  us  a  convenient  and  ready  standard 
for  expressing  the  value  of  things.  For  all  practical 
purposes  men  naturally  prefer  to  speak  of  price  rather 
than  value.  Even  when  they  use  the  word  value, 
they  often  mean  only  the  price.  In  political  economy 
it  is  necessary  to  keep  in  mind  the  distinction,  and  to 
86 


mn 


mmmjgt 


Price.  —  Wo 

Ig    tlui    VilllU! 

(l(»ne  is  to 
omit  by  the 
irs  from  the 
the  ainovuit 
t  means  the 
it  exchanges 

33  the  price 
•  instance  of 
use,  is  most 
ng  of  vahie 
er  cummodi- 
with  the  one 

:dy  standard 
all  practical 
price  rath(!r 
word  value, 
ical  economy 
ction,  and  to 


^•W*  in  Eichanye,  tm 

t  th.  ,„,„„  t„„...     If,  t.r  cxa,„„l..,  all  pri.-t,  Z  to  , 
■illwtol:  tli„  v«luo  of  monej-  i.,  \,mml 

Wo  t..r  all  v,.l,„.,  to  rise   .r  („11   togothor.     If  ,1„ 

"'"«»  ""=  '"  v«luo,„tl,„r g,  ,,.11.     „  ,,„„,  ^^J2 

'"''";  "».''■ ■""■•'1  >"".  te»,  toa  fall,  i„  v„l„e  as  com 

..«M  w,t„  „„of  u  «.,„.i„ ,,  i„.,„„,,,,,^  ,„^  ;; 

o    tea  to  U.,o„„,„  worth    ,„oro   boof,  a„d   „    ,„,„  „1   o 
"r^^l «•"'"-»».« 'tae.»orth, no  J  toa.    To 

o  uso  „  contradiotio,,  i„  .em,,,  ,;„„„  to  ,„,,  ,,,,,  J„' 
t  ...gs    ,av„  r«„  i„  val„o  i,  tho  .amo  as  sa,i„s T 
..  -  .l...,gs   l„.v„  fallen  i„   ,,,„,      ,„   „y_^^^  «     -' 
v»l»e  »  p,„Iy  a  mattor  of  c„,n,»ris„„;  thero  is  no 

-=..mn,„.l,t,..,tl.„,,„t,,or.    A,  all  tl,o  r',L.  .T: 

race  ca  ,„ot  snuulbuieously  gain  „„  each   other,  .o  all 

'•"m...o,l,t,es  ca,,,K,t  simutoaeously  rise  or  fall  i„  val„e. 

Wo  .shall  hml  that  the  price  of  every  co„„„„dity  i, 

"bjec    to  two  very  different  ki„ds  of  ch„„,,e.     uZ 

i  0  or  'f!n  "  T  "''  '"'  '""  '""'""'  ="  '»>'"'»P"..<ling 

I       it     f"  ,  '"  '™"  "'  °*"  """«=■    I"  "-  ™»  • 
worth  r  "■""'"""'"^  "  ""■"""^'i-     "  I"'-"- 


I 


mmsBam 


Rrt 


Jhlitiail  Kcoiumn. 


Ill  tlio  NWdiul  placo.  nil  pricoH  iimy  cluintju  toj^cUu  r. 
(Uitl  rquiilly;  that  is  to  my,  the  cxclmii},'*)  valiiif  <»f 
iiK.iicy  may  riso  or  lull.  In  this  ('\m\  IcnviiiK  inoiicy 
nut  of  thu  ammiit,  the  cxchauj^o  valuo  nf  other  thiiiKH. 
t;(im,*anul  niuoiig  thtniiHolvoH,  ruuiaiiis  unalU^n.-d.  Tlio 
(liH'i(ruiKH)  luftwuon  tlio  two  cases  is  highly  itnportant. 

Siiico  a  chaiiyo  in  th(^  juici)  of  an  article  may  or 
may  not  imply  a  <haii},'(!  in  itn  valuo,  it  would  Im 
8af(\st  always  to  siieak  of  value,  ratlu-r  than  prico. 
lUit  we  can  hardly  avoid  speaking  of  iiiicoa.  When- 
ever, in  the  following  jtages,  n  riso  or  fall  of  prico  is 
spoken  of,  it  m  to  he  understood  as  a  rise  or  fall  con- 
fined to  the  commodity  named:  imjdying  therefore  a 
corresponding  chiiugo  in  the  value  of  the  commodity. 

2.  Exchange  Value  and  Intrinsic  Value.  -  It  ia  iiece.s- 
sary  also  to  guard  against  (■onfoiindiiig  the  value  of 
whicL^  we  speak  ia  political  econoni)  with  the  intrinsic 
value  or  usefulness  of  things.  The  value  of  which  we 
speak  here  relates  simply  to  buying  uud  selling.  The 
full  name  for  it  is  value  in  exchange, 

Tt  i.s  true,  of  course,  that  nothing  can  have  value  in 
exchange  unless  some  jjcrsons  consider  it  a  good  thing 
to  have.  Things  that  have  no  intrinsic  value  for  any- 
body have  no  exchange  value  either.  But,  beyond 
this,  there  is  no  connection  between  the  excliange 
val*w  of  commodities  and  their  intrinsic  utility.  I 
suppose  we  should  all  agree  that  bread  is  intrinsically 
mure  useful  than  diamonds;  yet  one  little  diamond 
has  more   exchange   value  than  many  tons  of  bread. 


1 


yulue  in  J'Jjchunffe. 


1^0    valui!   of 

viiij^   iiioiicy 

>lhcr  thiiiKH, 

iLifrcd.     Tlio 

iiDportiiiit. 

.icle  may  <tr 

t   would    lie 

thiiii    yticti. 

ct!s.     When- 

1  of  price  is 

or  full  con- 

thcrufore   n 

(imiiiodity. 

-It    is    IR'CUS- 

ho  value  of 
the  intrinsic 
of  which  we 
3(;lling.     The 

nve  value  in 
a  good  thing 
lino  for  aiiy- 
Biit,  bcyonil 
liu  exchanf,'e 
c  utility.  I 
iutriusically 
Ltle  diamond 
ms  of  bread. 


"  ''••  ^'•"•'''  ^'""''•'  '•"  ••v,.tak..n  l.y  a  f..„n„...  tho 
••xclmnKo  valmss  of  hrcad  an.l  diiunonds  wonid  I,., 
•■  ""'K«-S.  In  o.ther  case,  M,„  vi,l.,n  of  th„  hm.d  or  .,f 
»■'"'  «l"""«'»'l  in  the  amount  of  other  things  to  I,.  .,ot 
•  II  cvcininK.!  f.,r  it. 

3.  Value  depend*  immediately  on  Demand  and  Supply- 
^Ve  are  all  awar.  that  when   the  supply  of  a  ,.,„.Mno.|- 
ny  con.ing  forward   for  sale  falls  short  of  the  denn.nd 
"•■  't,  the  pri.-e  is  usually  raised.     Those  who  have  it 
"r  snie   find    that   they  can   char,.,    n.ore    for   it   than 
'«fore,  and    y.-t   dispose    of   their    whole    stock.       Since 
l'».s,nes..  „...„  are  on   the  ah,rt  t..  ,nake   all  they  can 
they  ordmarily  raise  the   price  at   .mce.      Kven    if   for 
a..y   reason  they   fail  to   do   this,  the  8tock    will    pres- 
ontly  heeom..   exhansted.  and    the   buyers,  eager  to  «et 
J.HTe,  will  oflcr  a  higher  price  for  it. 

On  the  other  hand,  when  the  salable  supply  of  a 
'"""mo«lity  exceeds  the  demand  for  it  at  the  existing 
i.nce,  those  who  have  it  for  .sale  find  then.selves 
"I'hged  to  lower  the  pri,.e  i„  order  to  tempt  people 
10  buy  more  of  it.  If  they  fail  to  dr,  this  a  portion 
of  the  supply  will  remain  nnsohl  on  their  hands,  „nd 
th<-y  nuiy  los.  more  thereby  than  they  wonl.l  lose  by 
h»wenng  the  j)rice. 

Thus  much  we  could  .safely  say,  even  if  all  .sellers 
worke.l  ,n  perfect  hannony  and  .strict  combination 
w.  h  each  other.  I>.ut  it  is  extremely  rare  that  all 
sellers  act  in  hannony.  They  are  usually  more  or  less 
•u  the  attitude  of   rivals.     Each  acts  for   hini.self;   and 


00 


Jhlitinil  Kronaiil  ij. 


wh««n  it  kicumis  cli^'ur  tlmt  tlit*  •< ii«Hlity  ih  nut  r«'ll- 

ii\y  UN  IfuMt  rtM  it  i^  jirtttlii'i*!,  Momo  .UuKt  Im  |'r«'tty 
certain  to  (tHur  Iuh  »to<k  ut  a  hiwcr  prict!  (hun  liofuiv. 
In  RiUili  ft  I'liHc,  tho  nt'tinn  of  on*  di^iilfr  is  iwniilly 
I'ollowt'd  hy  othurs,  ami  tinally  l>y  all.  Any  ti<'nli'r 
who  (IcclinoH  to  follow,  <loes  ho  at  tli»  rink  of  snUinK 
little  or  nont!  of  Win  slm k.  Wo  liavo  in  'Iuh  a  case  of 
tli»>  foiniiftiliiMi  of  McUors. 

4.  Equilibrium  of  Supply  and  Demand.  Tlit)  iMitnral 
aim  of  tnulc  is  (o  ni.ik.'  (rKilian}j!t'  kw'ii  pnco  with 
l.ro<luction,  — to  soil  things  as  mi>iiUy  as  th'7  are 
liroduced. 

When  peoplo  buy  any  ronunodity  faster  than  it 
noiucH  forwnnl  from  tho  prothutTs,  the  prioo  is  raised 
Th(i  rise  of  prici!  causos  iiuojile  to  l»ny  loss  of  it.  Tho 
|)rici'  j,'iit's  on  risiii;^  until  tlic  dcnumtl  is  brought  to  a 
niiigh  iKHiality  with  th«^  daily  production. 

In  the  revorso  case,  when  a  commodity  doi's  not 
fi(dl  as  fast  as  it  is  product;d,  tho  prico  is  lowered  in 
ordor  to  tempt  people  to  buy  more  of  it.  Tho  price 
goes  on  falling  until  the  purchases  of  consumers  come 
to  be  roughly  eipuil  to  tin    daily  production. 

Thus  tho  value  of  everything  tends  to  l>e  such  as  to 
make  the  demand  equal  to  the  supply.  But  changes 
of  value  react  on  tho  supply  of  things  as  well  as  on 
the  domaiid  for  them.  On  the  aide  of  supi)ly  we  come 
to  the  source  <>f  commodities,  namely,  production. 

When  the  vabui  of  a  commodity  rises,  the  production 
of  it  becomes  more  prolitable  than  before.    Those  who 


n 
a 
h 
A 
el 
e.> 
th 

CO 


VuImc  ill    fCar/innfff. 


H 


[n  not  w\\- 
in   jiwlty 

liiui   Iwfnri'. 

is   uiHiiiilly 

Viiy  (Imilcr 
of  .si'lliii(<; 

■4    a    CUHll    of 

'tut  u  itiirul 

l»nco  with 

1    tlioy  nre 

>r  tliim  it 
(!  is  riiiMc<l. 
of  it.  The 
ought  to  u 

y   docs   not 

lowered  in 

Tho    price 

inuirs  come 

1. 
such  ns  to 

tut  chniifjes 
well  tt8  on 

ly  we  como 

iction. 

I  production 
Those  who 


pr.Hlu..,  It  ,m,  .ti»a,Iat,.cl  u,  p,.„ln...  n.oro  of  it;  ....J 

'"'"r'-'*  r' '"'"'    '"•  """"  '"l'*^"«    -   .l.-vol..d    to  tho 

W(»rk,  and  tlu-  proihiction  i>.  iii.'n'n.s..d. 

On  the  otluT  hand,  wh.n  tho  vuln.'  ..f  a  tIdnK  falls 
lu«.  w  u  pr.Hluco  it  find  thdr  industry  I.-s.  ,...'i,.,,,' 
lhi«  will  tend  t..  nmke  thon.  produ.o  hn.  of  it 

l»>.t  il...  proco«s  of  imrfU-sinK  or  din>ini.hin«  tl...  „n.. 

dna.on   ot   n...t  ....nnnoditi..   i.   n.^arily  non.Jl.at 

Hl-^^.     Irndu.tM.n,  UH   wo   l.uv..  „lr,,„lv  .,.,.„     rn,„ir..H 

.me.  ..p..eially  wh...,   nnud.   n.a.l.incn-   is   ...'i;'.,    ..J 

2  P~H  of  growth  and  nnundW,\n.  I.UCM0'  I. 

"  K  a  K,ven  c.unn.odity.  it  is   not  .a.y  for  thnn   to 
-   .draw  iron.  .t.     Kven  a  ten.porary  .stopp„«.  ,•„„,,, 

:"""   "' "^•''""•"•''    »•"•    l-^''    »'oth    iu  ..n.plov,.rs   „nd 

"'•"rer«.     Men  usually  abancion  an  industry  only  whon 
they  nre  forced  to  do  so.  ' 

n  frdlows  that  the  rough  e,i„nlity  between  supply 
■|";'  ''••>"«nd  .s  mnintninod.  from  day  to  day.  ratl.nr  by 
"'•"  .n«  the  d..m«nd  tbro„,d.  changes  of  value  „.„„ 
h  ..;roctu.g  tl...  snpply  through  changes  of  prodn.lion. 
A  high  or  low  value  acts  at  once  on  the  do-mand 
<'l««c.kM,g  or  stimulatiuR  ifc  i„to  duality  with  the' 
oxistmg  snpply,  until  production  can  adjust  itself  to 
the  situation. 

The  conn,.,  tion  between  value  and  production  will  be' 
considered  more  fnlly  i„  the  next  chapter. 


i. 


CIIAl'TKU    XI. 

COST  OF    PUODUCTION    AB  THB  OLTIMATB   BHQULATOR 

or  VALUn. 

1.  Colt  of  Production  to  th«  Employer,  or  Money  Coit— 
Tliiirn  all!  iwo  ways  of  l>M.kiii«  at  «<mt  of  jiroiluctiou. 
W(«  nmy,  In  tho  lirHt  pW'n.  n'Kard  tho  inatt«T  wholly 
fniiii  tlut  HUiu.l-itoiiit  of  «iiii)loy«'rM  of  labor.  For  thorn 
tho  coHt  of  pvotluciiiK  II  toiiunodity  is  tho  nmount  thoy 
IMiy  out  for  inutt-riulH,  nnuhiiu'ry.  oto.,  nml  in  wiiroh  to 
thoir  lahoriTrt,  Tliis  is  a  natural  ami  coiivoniont  viow 
of  cortt  of  iirodnction  as  a  inattor  of  practical  buHinosH. 
It  iH,  in  fact,  tiio  only  viow  that  conld  liud  '.-xjircHHion  in 
hook-koi'iiinK.  It  givcH  tho  eniployor  a  baHin  for  rockon- 
i!i«  how  nuich  ho  gains  by  Holling  \m  pnnlnct  at  any 
givon  price.  Tho  »iuoHtion  of  cost  for  hin»  has  refer- 
once  only  to  \m  profits.  Of  course,  tiic  more  clieaply 
he  can  get  the  re(iuisito8  of  production,  including  pro- 
ductive lal»or,  tho  greater  his  profits  will  bo. 

Hut  in  several  v/ays  this  viow  is  iiiade<iuate  foi 
scicntitic  usoa.  First,  it  is  too  narrow,  since  it  applies 
only  to  proiluction  carried  on  by  hircMl  labor.  It  gives 
UH  no  definition  for  tho  cost  of  production  where  those 
who  do  tho  labor  provide  tho  capital  loo,  —  as  is  tho 
case,    for    exainplo,    with    many    hunters,    liahermon, 


'«M» 


I 


MUULATOH 

ney  Coit  — 

|ii'iiilu('tion. 

tor  whiiUy 

For  them 

iiiiiiitt  tliuy 

II    WIlgOH    to 

iiiiiMit  view 

\\    bUHinCRH. 

(|iri'HHion  iti 
for  rt'ckon- 
lurt  at  nny 
has  ffiftT- 
)ri(  (!h(>ai>ly 
hiding  i»ro- 

k'fumto  foi 
p  it  apjilios 
r.  It  givi!8 
where  thoHO 
—  as  is  the 
Qahuriuen, 


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Photogiaphic 

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Corporation 


13  WEST  MAIN  STREET 

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CIHM/ICMH 

Microfiche 

Series. 


CIHM/ICMH 
Collection  de 
microfiches. 


Canadian  Institute  for  Historical  Microreproductions  /  Institut  Canadian  de  microreproductions  historiques 


CoHt  of  Production  the  licgtiltdor  of  Value.       93 


tailors,    slioomnkers,   small    fnrmors,    mid    ..tluTs.      In 
fact,  it  rolatcp  not  to  productioi.  in  nnd   of   itself,  but 
to  the  tonus  on  which  soui(>  men   can  hire  othor'nion 
to  labor  for  them  in  producing  things.     It  views  the 
hired   laborer  as  a  productive   machine  whose  services 
cost   men    sometiiing,  rather  than   as   himself  a   man 
e-iually  interested  with   the   employer  in  getting  com- 
modities produced   at  a   low  cost.      The   true   cost   to 
men  of  producing  the  things  they  need   must   be  the 
same,  whether  some  work  as  hired  laborers  for  others, 
or    all    work    for    themselves.      We    therefore   ju-ed    a 
broader  definition  that  shall  not  view  production  solelv 
as  an  opportunity  for  employers  to  make  profit. 
^     Secoiully,   even   where    production   is   carried   on   by 
hired  laborers,  this  view  of  cost  of  production  exposes 
those  who  adopt  it  to  very  serious  errors  and  miscon- 
ceptions.    The   payments  an  employer  has  to  make  in 
getting  an   article    produbed   are   liable   to   change   for 
reasons  that  have  no  real  connection  with  the  produc- 
tion of  the  article.     For  e.xami)le,  four  hundred   years 
ago  an  employer's  accounts  showed  very  much  smaller 
payments  for  wages  and   other  things  than  they  do  at 
present.     Men  could  be  hired   for  from  ten  to  fifteen 
cents  a  day;  wheat  could  be  bought  for  eighteen  cents 
a   bushel;   beef  for   less   than  a  cent  a  pound;   butter 
for  ft  cent;  and  other  tilings  in  proportion.^     In  those 
days  money  had  ten  or  twelve  times  more  value  than 
it  has   now.      If,  therefore,  we   should    hohl   the  view 
1  Thorold  Rogers,  Work  and  Wages,  p.  MO. 


w 


94 


Political  Economy. 


tliat  tlio  coat  of  production  of  things  is  nicnsnied  Ity 
the  money  payments  of  emi)loyerfi,  wo  should  have  to 
say  that  it  is  greater  now  than  it  was  four  hundred 
years  ago:  the  fact  being  that  inventions  have  very 
much  lessened  it. 

Those  who  compare  the  cost  of  producing  things 
in  difl'erent  countries  at  the  present  time,  using  the 
money  ])ayments  of  employers  as  a  basis  of  compari- 
son, are  liable  to  the  same  error.  The  vplue  of  money 
diH'ers  very  considerably  in  dificrent  countries  and 
even  in  different  i-arts  of  the  same  country.  Tliis  is 
especially  true  in  the  case  of  countries  and  regions 
between  which  trade  is  impeded  or  prevented.  For 
example,  in  the  early  days  of  gold-mining  in  Califor- 
nio,  before  facilities  existed  for  trade  with  other  parts* 
money  had  a  much  lower  value  than  it  had  in  the 
rest  of  the  country. 

2.  True  Cost  of  ProductiOB.  —  We  need  a  broader 
and  truer  definition  of  cost  of  production  than  the  one 
just  considered,  a  definition  that  shall  apply  to  all 
production  under  whatever  conditions  carried  on,  and 
shall  be  free  from  liability  to  error  on  account  of 
fluctuations  in  the  value  of  money. 

Such  a  definition  we  gain  by  looking  simply  at 
produciion  itself,  rather  than  at  the  accidental  and 
more  or  less  artificial  arrangements  made  between 
men  in  regard  to  it.  It  is  no  necessary  feature  of 
production  that  a  few  men  should  own  the  capital  and 
should   hire    the   rest   with  a  view   to  making  profit. 


Cod  of  I*rodmtion  the  licgulator  uf  Value.        95 


riiensiiied  l»y 
uld  have  to 
nir  liuiulrud 
i   lifive   vory 

icing  thiiij,'s 
I,  'isiiig  tlio 
of  coinpari- 
le  of  money 
untries  und 
ry.  This  is 
and  regions 
ented.  For 
in  Califor- 
other  parts, 
lind  in   the 

I  a  broader 
han  the  one 
pply  to  all 
"ied  on,  and 
account    of 

simply  at 
idental  and 
de    between 

feature  of 

capital  and 

iking  profit. 


It  is,  hownver,  nec^issary  that  iiwn  sliuujd  labor;  and 
it  is  cfiuully  necessary,  owing  to  tlii!  nature  of  produc- 
tion,  tliat  most  of  the  labor  needed  for  producing  enjoy' 
able  commodities,  should  be  expended  long  in  advance 
of  receiving  them  as  its  reward. 

These  two  sacrifices  of  our  ease  and  jiresent  enjoy, 
ment,  first  the  burden  of  labor  and  then  the  burden 
of  waiting  for  our  reward,  are  demanded  by  the  very 
nature  of  production,  and  constitute  for  men  the  trua 
cost  of  everythii.,'  they  produce.  Men  who,  having 
the  recpiisice  knowledge  and  natural  wealth,  are  able 
and  willing  to  labor  and  to  wait  for  the  reward,  are 
in  a  position  to  produce  for  themselves  whatever  it  is 
possible  for  men  to  produce.  We  may  therefore  define 
the  cost  of  production  of  every  commodity  as  the 
quantity  of  labor  and  the  amount  of  waiting  necessary 
in  order  to  produce  it.    (See  Appendix,  page  387.) 

This  definition  applies  equally  well  whether  those 
who  pcrl'urm  the  labor  receive  wages  or  wait  for  the 
natural  reward  of  their  labor;  if  they  receive  wages, 
then  the  burden  of  waiting  is  assumed  by  another.  It 
also  avoids  all  danger  of  error  on  account  of  changes 
in  the  value  of  money. 

As  thus  defined,  cost  of  production  is  affected  only 
by  changes  that  appear  in  the  act  of  production 
itself,  —  changes  that  make  the  production  easier  or 
harder  than  it  was  before.  Inventions  that  lessen  the 
necessary  labor,  and  the  discovery  of  new  and  more 
fruitful  sources  of  materials,  lessen  the  cost  of  produc- 


I   ' 


4 


06 


Politiriil  Jicononii/. 


tioii.  ()t\  tho  nthor  hand,  if  thn  ttusb  and  must  con- 
veiiic^nt  8«)urcoH  of  niaU>rifil8  should  beccitiu;  oximustud, 
the  cost  of  production  would  1k!  iniiicasod. 

Hut  clmnyos  of  wages  have  no  effect  on  cost  of 
production  as  hero  doHiied.  Tho  labor  and  the  waitin;,' 
required  to  jiroduco  any  article  are  tho  same  when 
wages  are  high  as  when  wages  are  low.  Changes  of 
wages,  as  wo  shall  see  presently,  allect  only  tho  profits 
of  employers. 

Again,  acconling  to  this  definition  the  exertions  of 
the  empUtyer  himself  ar  part  of  tho  cost  of  produc- 
tion, since  the  labor  ot  planning  and  directing  tho 
work  is  a  necessary  part  of  the  lal)or  of  producing 
things.  The  view  that  finds  tho  cost  of  production 
in  the  employer's  payments,  makes  no  account  «»f  this : 
it  ignores  tho  employer's  own  share  in  jjroduction. 

Since,  however,  the  business  man's  view  of  the  cost 
of  production  is  not  likely  to  be  abandoned,  we  may 
distinguish  the  two  definitions  by  calling  the  first,  Em- 
ployer's Cost  or  Money  Cost,  and  the  other.  Economic 
Cost  or  Real  Cost.  In  this  way  we  may  hojio  to  avoid 
misunderstandings.  The  two,  as  we  shall  see  more  fully 
later,  relate  to  very  different  things. 

3.  Labor  as  an  Element  in  the  Cost  of  Production. — 
The  chief  clement  in  the  cost  of  production  is  labor. 
We  include,  in  each  case,  all  the  labor,  whether  of 
hand  or  head,  which  contributes  in  any  way  to  the 
production  of  the  commodity.  The  mental  labor  of 
planning  the  work  and  of  directing  and  overseeing  the 


\ 

8 

II 

e 
o 
si 

P< 
si 

ai 
pc 


most  con- 
oxlmustud, 

L)U      cost      of 

tlit5  wailiii},' 

snino   when 

ClmngOH  of 

tlio  profits 

xertions   of 

of   produc- 

recting   tho 

producing 

production 

int  of  tluH: 

action. 

of  tlic  cost 

3d,  wo  may 

3  first,  Eni- 

*,  Economic 

jie  to  avoid 

!  more  fully 

roduotion.  — 
)n  is  labor, 
whether  of 
[vay  to  the 
il  labor  of 
srseeing  the 


tl.o  cxert.0,,.  of  i|,„  „„,|„„„„  i|,„„„„|,^,  """  " 

U  M  to  !»  romc.i.l„!ml  that  the  l»l„,r  „f  „„  i     • 
«n  article   i„d„dc»  all   th„  ,„,,„,      "",,"'    ""'"""S 

-^r.:.;:::,,:::  r-t^'  -  - «. :: 

"""»■  Ai,„,  it  i„ci  1  1 1 ,  '"; """ "'""' "'  ■•'"' 

:-«. .— "t:s  r^h:  ^::;:;-';:: 

Z"T    "" "■""" "'"'"■  ""-"■  o^-. ""-"ic.i»! 

I"    tho    in,l„,trie,    requiring  MM  or  tr„i„i„„    ,,,„ 
cost  o(  production. 

The  lubor  „,  p,,„j„„i„g  ^  con,u,o.Iiiy  al,o  iucludea 
H.0  hhor  of  ,„„ki„,,  the  re,,„iaito  to„lJ„,„ehi„  1  3. 
»1.I  .aucc,  of  „„  kind,  for  ca,.yi„g  on\ue  wlZ 

1  ut  here  we  mu8t  remember  that  the  machiuerv 
•>'"M".8»,  etc,  are  „.,t  u,ed  u„  in  producinra  ,  I' 
».«,,„„„  of  y,e  co„„„„dit,..  The  labor  „,  ntkin  .1 
.»«ch,„ery  „,„,t  be   regarded  as  belougiug,  i,,^^^ 

part  of  M,„   1  .        ,        ,  '    O"0-tcn.thousai,dth 

■     '"    "">   »«»'«   «y.  in    the    case   of   all   other 
apFJOtus    of    produetiou    and    exchange,    only  a  to 
1-t.onal  part  of   the  Ubor  of  making 'it  JlougaT 


iiir  ^t 


-i!! 


I::!: 


'"*"»W»«WWto«!E--v 


T 


M 


IHitical    Econmnif. 


tho  cont  of  pro«iuction  of  any  given  quantity  of  each 
comnuKlity. 

4.  How  Labor  U  Meaiur«d. — Tlio  term  "<;unntity  of 
labor/'  an  usdil  in  doflninj,'  cost  of  imKhiction,  needs 
•ome  exnlaniitioii.  Tho  (luiintily  of  luhor  ru(iuired  for 
pHMluoing  a  conunodity  is  not  nieiisurud  siiiiply  by 
days  or  hours,  tliough  thu  length  of  time  occupied 
must  always  ho  the  chief  factor  in  tho  case  Wo 
must  include,  with  tiie  length  of  time,  every  other 
feature  of  the  work  that  tends  to  attract  or  to  reix.-! 
producers.    " 

A  day's  labor  in  on  industry  that  ia  disagreeable, 
or  dangerous,  or  exhausting  for  those  engaged  in  it, 
is  a  greater  quantity  of  labor  than  a  day's  work  in  a 
pleasant,  safe,  and  easy  occupation.  Tho  standard, 
however,  for  judging  the  clmracter  of  different  occu- 
pations in  these  respects,  is  the  opinion  and  behavior 
of  the  laborers  concerned,  —  which  may  or  may  not 
bo  entirely  in  harmony  with  tho  actual  facts.  What 
they  think  hard  or  dangerous  or  disagreeable  is,  for 
our  present  purpose,  hard  or  dangerous  or  disagree- 
able; what  they  think  easy  and  pleasant  is  easy  and 
pleasant. 

The  product  of  an  industry  that  the  laborers  are 
reluctant  to  enter  must  have  a  higher  value  than  a 
product  made  in  the  same  length  of  time  in  an  in- 
industry  which  they  regard  as  attractive,  —  enough 
higher  to  correspond  with  the  greater  sacrifice  made 
by  the  laborers  who  engage  in  the  distasteful  industry. 


i 


TT* 


Coat  of  Production  the  lieiinlator  of  Value. 


no 


itity  of  each 

"fjimiitity  of 

iictioii,  ucwls 

rufiuired  for 

1    siiaply  by 

ine    tM;c»ii)ic(l 

0    ca.sf      Wo 

every   other 

or  to  reiH.*l 

(lisagrooal)lo, 
gnged  ill  it, 
8  work  ill  a 
ho  Htaudard, 
Herent  occu- 
nd  behavior 
or  may  not 
facts.  What 
3able  is,  for 
or  disagree- 
is  easy  and 

laborers  are 
aluc  than  a 
3  in  an  in- 
e,  —  enough 
crifice  made 
ful  industry. 


I 


If.  for  oxamplo.  workmen  think  two  days'  hibor  in  a 
<'oal-|)it  as  great  a  sm;riH<M,  m  thnu-  days'  labor  in  the 
Hidds  or  in  the  forest,  tlien  so  far  as  cost  of  prfxluc- 
tion  is  concerned,  t^^o  days'  work  in  a  coal-pit  is  as 
great  a  quantity  of  labor  as  three  days'  ir.bor  in  the 
fields  or  in  the  woods.  I„  guch  a  case,  other  things 
being  equal,  the  coal  j)rodMced  by  two  days'  labor  will 
nrdinarily  have  the  same  value  as  the  amount  of 
wheat  or  of  lumbor  produced  by  three  days'  labor. 

«.  Of  Waiting  at  an  Element  in  Coit  of  Production.— 
I  have  said  that  labor  is  the  chief  element  in  the  cost 
of  production.  But  since  labor  does  not  result  at  onco 
in  a  commodity  good  for  human  use,  and  since  it  is 
burdensome  to  wait  for  good  things  after  we  have 
labored  to  get  them,  this  necessity  of  waiting  must 
be  included  in  each  case  as  part  of  the  cost.  It  is 
a  sacrifico  as  real  as  the  labor  itself,  though  of  a 
different  kind. 

The    period   of  necessary  waiting   differs    much,    as 
wo    have    already   seen,    in    different    industries.     For 
example,   a   quarter    of    beef    and  a  load    of    building 
stones  may  have  cost  the   .same   amount  of  labor;  but 
their  values  are   not   for  that  reason   the  same.    The 
labor   that    produced    the    building    stone    may    have 
been  for  the  most   part  quite   recent;   whereas,  by  the 
necessity   of  the   case,   tho    labor  of  raising    the    beef 
must  have  been  spread  over  several  years.     Tho  labor 
spent  in  the  early  stages  of  producing  the   beef  has 
to  go  long  without  its  natural  reward.    Therefore,  the 


'If 


i'"i"ViT  "■iTIM.I'J.iu^,,,,^, 


'M 


100 


JMitienI   SeoMmn, 


Iwef,  whoii  at  liint  it  is  ruudy  fur  UM  must  )iAV« 
u  vnluH  otiiiu^h  hifthor  tliiiri  thnt  of  i\u\  hIoik'n  to 
MWiird  thin  loiigor  wiiitii:^-  Otlu'rwiHe  men  would 
iivoid  iiiduHtriuN,  nuch  an  tlut  miNiii){  of  li(!«>f,  in  which 
loii^'  wiiitioK  iH  rrccHNnry,  luid  would  tlotk  into  thoHo 
uccupalioiiH  that  yield  thidr  |irodu('tN  nio.tl  (|uickly. 

Thu  waiting  oluntunt  in  cuHt  of  prodiution  in  ron- 
nucUtd,  nH  wu  soe  at  oncu,  with  thu  caiiital  nsud. 
Caiiitul  at  any  inoniunt  ropromMitH  thu  hihor  put  into 
production  without  rccoiving,  ns  yot,  any  ('nj«»yaldH 
return.  Somebody  is,  of  conrHO,  entitled  to  receivt! 
Natiire'H  reward  for  that  laltor  in  the  future.  The 
nuin  who  actually  performed  thu  lalior  may  have  heon 
ndievod  of  the  widting,  may  have  parted  with  his 
right  to  the  future  reward  hy  receiving  wngca  in- 
stead of  it;  hut  thi.s  onl}  trauNfers  the  burden  of  the 
waiting  to  another.  Capital  always  implies  a  deferred 
reward  for  liilior. 

A  largo  part  of  capital  consists  of  machinery.  The 
natural  reward  of  the  labor  si»ent  in  making  machinery, 
comes  by  small  installments,  day  by  day,  in  the  enjoy- 
able products  the  machinery  helps  to  produce.  The 
sustained  waiting  for  these  products  to  apjuuir  con- 
stitutes a  substantial  part  of  the  cost  of  producuig 
them.  When  machinery  is  introdiiced  into  nn  in- 
dustry previously  carried  on  by  hand,  the  cost  of 
production  is  not  lessened  to  the  same  extent  as  the 
quantity  of  labor  is  lessened.  The  making  of  the 
machinery  involves    new    waiting,    since    the    natural 


IllUrit     llilVit 

lin    Htniit's    to 

moil  wiiiiM 
t'vf,  ill  which 
'k  into  thoHo 
.  quickly. 
I'tioii  in  coil' 
ca|iitul  iiHtxI. 
ilxir  |iiit  into 
ny  ciijoyalth) 
it    to    n-ccivo 

fiiliirc.  Tho 
fiy  hiivi)  hcoii 
I'd  witii  his 
g  wng»B  in- 
iinlcii  of  th(! 
08  a  (Icforrcd 

;liitiory.    Tho 

ig  iiiacliiiicry, 

ill  tho  oiijoy- 

»ri)(luco.    The 

appear    con- 

i)f    proiiuciiig 

into    nil    in- 

tho    cost    of 

xtent  as  the 

iking    of  the 

tho    natural 


_tW  £^/V,„W,.,„  u,  u,,ul.„,,r  „/  ValM,.     101 


■»««!  .,(  th.  Ubor  l|,„,   ,„„k„.  I,  ,111   I 

..,.,,„,,  I,  u„.  ,„.„ , , ;:,  » 

1''"'^   " ';■«  "'  ""•  '■'!■ '  kmK  tl„.    ,„.. ' 

""",":'"■'  ""  ""■'■ 'y    <>"  lh,..„  u„ ,„  ,„„„ 

w..«l,l  ,lo,„u,  l„l,„r  i„  „,„  ,„„ki„„  „,  ,„„,.,„,,„, 

How  m,>ol,  i|,„  V. ,f  „  ,.„,„„„„|i,    ,|,„j 

« -.t,n„  .,,,.,1 ,.,,.,., 1 .1,,,  V „,;„„„ j,7; 

"7."":, wt.,  t„r. ,„,iui  ,j„,,'i„  ;^: 

B.-    ...   .u,,o„„t  or   labor   l,„i„B  „,„  ,„„,  ,„   , 

™    "'    / '■■•'".<„,„,. „.  i„  „„.  of  „r,„|„„. 

tX.  .  '  ™."|.»mliv.,Iy  li.M„  i„  ,|„„n„i ^ 

•..  otl,„r  wonl,.  thore  i,  „„  ,t„,„,„„|  ,,„ 

tak..  II...  J,.,l«,„„„t  „f  ,l„„„  „,,„  ,„, ^  J^^     ^^  ^ 

°'""""'  "■«""'"'«  ■'  "  '""BLly icat.,,!  I,y  tl,„  „v„„,;„ 

..:  .-r:;x;,:;::::i':iz:r;, '  •■•  "■•^' 

Uecllno  in  oxchai.go  value.  """^  '""«'"*^  *"""« 


109 


i\dilif»tl    Keiinomif. 


riti**  iif  iiitt<n*Nt  nii  Iduiih.  In  ii  counlry  wIdth  Uhi 
|MM)|i|o  ntftitily  Ntiiiinit  to  wnitinu,  thn  rnUt  of  iritoreit 
Im  UHiiiiiiy  low;  wlinnmit  in  romitritiii  wIhti*  waiting  in 
ri'MonlK*!  iiM  niori)  iturtlnnNoiito,  tho  rntti  u(  tiitoruNt  Ih 
usually  Ui^h. 

6.  CMt  of  Prodaotion  !•  m«d«  np  of  many  rmaU  parta. 
I  If  now  wi)  mIiouIiI  try  to  analy/,it  tlin  iimt  of  |irotlui'- 
tioii  of  iuiy  <'iiniuio*lity,  wu  Hlioultl  Hnd  it  to  coniiiHt 
of  many  HUiall  liits  of  lal)or,  «uu'h  tollowwl  by  itii 
own  )M<riotl  of  waiting.  Thu  nuniUir  of  iH^rHoiiH  who 
coiitriliuti',  in  ono  way  or  nnotluT,  to  tho  work 
of  |iro*lui'iug  and  fxcluinging  i>vi>n  tlm  Hini|>Iimt  com- 
luodily,  in  HurpriHingly  largi".  Tint  production  of  a 
book  in  probably  not  nioro  coniplicatiHl  than  that  of 
muiit  other  comniodilittH ;  yot  if  I  wuni  to  begin  liuro 
n  full  arcount  of  all  tlin  noparnto  <-oiitributiouN  niadtt 
by  dilTtTunt  imtmouh  to  tliti  iirodiictlou  of  this  liltlit 
book,  I  think  thu  book  itNiilf  would  hurdly  cuntuiu 
tliM  liHt  of  tlutm. 

TiUt  un  l(Mik  for  a  niomont  at  tliu  cost  of  producing 
thu  papor  on  whi<'h  it  iH  printed. 

Tho  foHt  of  manufacturing  tho  bout  printing-papur, 
and  of  tratiHporting  it  to  the  place  of  \m>,  is  made  up 
«»f  the  items  given  in  tht!  following  liHt:  The  ligureH 
or<!  for  a  ijuantity  costing  $10,000,  and  are  taken  from 
the  actual  accountH  of  a  New  Kngland  paiRT-mill  for  the 
year  1S87.  They  represent,  of  course,  what  wo  have 
called  th«!  Kmployer's,  or  Money,  Cost,  uinco  thin  il  all 
that  thu  manufucturur'H  books  are  concerned  with. 


wlii'ni  lliM 
)  of  itiU>m«t 
It  waiting  in 
f   iiiUiruMt  in 

mall  pftrta,  -~ 
t  of  iirottuc;- 

t     to     UDIINiHt 

twtttl  hy  ilM 
Ikthuiih  wIk) 
I    tint     work 

lllpUtMl     I'OIII- 

iH'tion  (if  a 
:liaii  that  of 
)  Ix'^iii  liitrt) 
iiitioiiN  iiimltt 
•f  thin  littln 
inily   cutttuin 

uf  prtHliiciiig 

rintlnK-prtp<!r, 
,  in  nuitUt  lip 
Tlio  liKunm 
a  t(ik(!ii  from 
r-niill  for  the 
hat  w«  httvo 
ou  thin  18  all 
ed  with. 


eW  »/  /V,W«r/„>„  a,  HryHlnlot  ./  Valut. 


103 


S^'t'.'"""' «yn. 

•'tt'i „^ 

W.mmI  Klltra  ..,.'.■)  7,\| 

•■"H.-ii  KiiK-  .    '     '      \'~L 

I.Hi. .... 

I'dlMirn    . 

■  

"•mIu  Axil 

AhiiM     .    ,    ,    , 

a«y '  • 

l.lllin 

itiHiIri     ,    , 

«»ll  of  VUrl.il     .    ."    .    , 

t'«»liir» 

•Jtan-h   ... 


Hirmli 

I,iil.rl.iiii||„  Oil      . 

l.lKlitu 

l.iiMiU.r     .    .    .    I    .' 

,  W  rii|.|H.m 

IIJ    MiirllM.. 

Irt«   Kri'lKlil  mill  CiirtuKe.^ 
U    lli.w..  niHJ  CiirrluKn  .' 


iHia 
n 

IT 

i>i 

(M 

7.1 

m 


•  •     •     .      40   HMii.rrli.1 ■     _      *^ 

•  •     •    .      7.^|T..«.»ii  ....'.'■■■      Jl, 
•    •       ")W'«»»rN(||,..|u.||n«„mim„i.r', 

■    ■    ■    •       '\\        "•'"'>' lr»T4 

""'    ■''■■""• town 

"  •"")■  «"om  «t  fir-l  ,i„ht  tl,«  „„|,.  „|„,„t  „  ,1,(1,  , . 

"„:::"•  i::!  ,r  '■'  •■; '■•■■-'•■« "'lu 

»H,  llml  tl„.,„„„  ,,„|,|  ,,„  ,„„„|,|„ 

" "■I'.'r"  (-"w- « i'"."t)  u,  „.i„.r  ..",,:„,;,,  I 

:;«;;:  r:" ;:,'""  >•" ■• »'  'i.» iL?.  ,;,: 

...  . !  .  '  uivision  of  liiliiir  aiiiniiif 

'''■'■"7 k™  -  .iim.„.,„.„;  i„  .,,. lin,!' 

'"'" ""' "'  "■'■■"""■"""  i»  «■-.,».  at  i„« :;„ ',;; 

J  ».r:;i„',:;::  ,!:r  "■""■"'■; • ■ •  ■■'  ^ m. 

■"■•  "• '-  «"".■ .,  .i,„L,i  !;i.„;,';:  "'"""■"' ■ ">. 

"-M..T.M,;:;'.";:;';;::,::  T.:rr'' ' •  •■'  '■ ■ •■» 

..-.  ^. .... ...,«  l:;:l  ::z:;;;';:,;',;;,;t::::  • 


104 


PoUtiml    Economy. 


of  labor  and  wuitiiij,',  so  chu  (iiiiployor's  cost  is  always 
iit  lioltoiu  niiiilt!  11, »  of  payiiKMits  for  labor  and  waiting. 

If   now   W'.--   slioiild   attiii.ipt   to   analyzo    tlus   cost   of 
l)rodu(lion  of  any  coniinodity  into  all  tlit;  parts  or  par- 
ii.,'.,!S  of   wiiich   it   is  (jomi-osud,  tli'J   task   wonld    i»rovu 
to  lio  very  Ion-,'.     Whattivor  is  us^d  in  the  production 
of   till!   liuildingH   or  the    machinery,    or   tlie  wood-tibro 
(»r  the  alum  or  anything  el  e  named  in  the  above  list, 
is  in  fact  used  in  the  production  of  paper.     Its  cost  of 
jiroduction   is  thoriifore  part   of  the   cost  of   producing 
|.iipor.     In    analyzing   the  cost   of   production   of   paper 
we  should  have  to  analyze  the  cost  of  each  of  these, — 
which  would  give  us  for  each  of  them  a  list  of  items 
al)out  as  long  as  that  given  above  for  the  paper  HhM 
Again,  -.-ach   article   nained   in   these   new   lists,  would 
have  a  cost  of  production  needin}^,  in  turn,  to  be  simi- 
larly resolved  into  its  parts;   which  would  give  a  new 
and  very  numerous  set  of   items;  and  so  on  iintil  we 
siiould    bring   in   every    article   that   comes    into   play, 
.lircctly  or  indirectly,  in  tho  production  of  paper.     We 
should   (ind,   in    this   way,   that   the    labor   of    making 
paper  is  resolvable  into  many  hundredH,  perhaps   thou- 
sands, of  parts;  some  of  th.m  perhaps  t<to  small  to  be 
.>.;t.  tt'd,  but   all   of   them    necessary    to   the    final   result. 
The  sum  of  all  these  labors,  together  with  the  aggregate 
oi  all  corresponding  periods  of  waiting  for  reward,  con- 
stitute the  true  or  economic  cost  of  production. 

This  reminds    us   of  the   wonderful   extent  to  which 
civilized  men  have  carried  division  of  labor.     The  in- 


y  is  always 
(1  waiting. 

,llC     <!(IHt     (if 

irts  or  par- 
oul'J   i)r()Vo 
j)ro(l»cti<iii 
)  woctd-tibro 
above  list, 
Its  cost  of 
I   proiluciiig 
in   of   paper 
of  these, — 
ist  of  items 
paper  itfcjlf. 
lists,  would 
to  be  siiiii- 
give  a  new 
cm  until  wo 
I    into   play, 
paper.     We 
of    niiikiiig 
rbaps   tbou- 
sinall  to  be 
final   result, 
be  aggregate 
reward,  con- 
;tion. 

nt  to  which 
or.     The  in- 


^^'^  "/  t'^o'fydwn  the  Jif;i„I„(or  „/  Vnlur.      lOf, 

<lu.stri.s  of  a  nation    are   clos.ly  interwoven  wr7".^ 
other.  forn.in«  in   reality  u„o  great  syst.-n.   of   ,....o,.,,,,- 

t. on.  Kad,  producer  depends  on  the  help  of  thousands 
of  others  whon.  h„  ,,as  never  seen.  The  .situation, 
along  With  the  .reat  advantages  it  brings,  obviously 
'•"Posos  a  grave  duty  on  all  concerned.  Any  interrur!- 
•on  or  d.sturba,.ce  at  any  part  of  the  systen.  is  certain 
to  work  n.jnry  for  the  wh<de  body  of  prodturrs 

7.  Market  Value  tends  to  Conform  to  Natural  Value. - 
Ihe  Natural  Value  of  every  conunodity  is  that  which  cor- 
rosp,>nds  to  the  cost  of  producing  it.     Things  exchange 
■     for  each  other  at  their  natnral  value  when  for  a  -dven 
atmnfty  of  any  particular  conunodity,  the  seller  can  ob- 
tain as  much  of  every  other  co.nn.odity  as  is  produced 
by  die  same  quantity,  or  equivalent  quantities,  of  labor 
and  wa,ting.     Thus  the  law  of  natural  value  is  simply 
the  just  rule  of  equal  rewards  for  equal  sacrifices. 

lh.s  ,.s,  however,  a  rather  ideal  standard  to  -,vhich 
t .,  actual  values  of  things  at  any  given  n.on.ent 
sel.lom  or  never  exactly  correspond.  The  actual  or 
market  value  of  every  commodity  is  acted  on.  as  we 
know  by  every  change  of  demand  or  of  supply.  These 
disturbances  are  temporary  in  their  effects,  but  they  are 
constantly  occurring.  The  result  is  that  the  n.arket 
value  of  every  commodity  is  commonly  son.ewhat  above 
or  below  Its  natural  value. 

But  we  can  safely  say  that,  except  in  special  cases 
to  be  spoKen  of  i„  a  later  chapter,  when  the  market 
value  of  any  commodity  is  above  or  below  its  natural 


valiKi,  tho  rule  of  e<iual  lewnnls  for  equal  sacrifices  will 
tend  to  brill},'  it  buck  to  that  level.  When  the  business 
nf  producinj,'  any  coniniodity  is  more  jirofitable  tlmn  the 
Itroductioii  of  other  thing's,  new  labor  and  capital  will  l)e 
iitt ratted  into  iiroducing  it,  and  the  resultinji,'  iiicreaHe 
of  suiiply  will  cause  the  market  value  to  fall ;  when 
it  is  less  profitable,  tho  reverse  will  happen. 

We  now  sec  how,  under  division  of  labor,  each  man 
knows  what  to  produce  and  what  to  avoid  producing, 
though  he  has  never  sev'n  the  persons  who  are  to  u,se 
his  product.  These  changes  of  value  are  messages  of  a 
very  cHective  sort  from  the  consumers,  telling  when 
too  much  or  too  little  of  any  article  is  produced.  With- 
out them,  production  by  division  of  labor  would  be 
reduced  to  hopeless  guessing. 

8.  Improvementa  in  Production.  —  Tt  is  important  in 
considering  the  efl'ect  of  improvements,  to  bear  in  mind 
that  it  is  the  comparative,  not  the  absolute,  cost  of  pro- 
duction that  governs  the  values  »»f  things.  If  by  a 
universal  imprf)vement  we  could  lessen  by  one-half  the 
cost  of  production  of  all  things,  the  value  of  every  com- 
modity would  remain  unclianged.  The  ratio  of  the  cost 
of  each  to  that  of  every  other  would  be  the  same  as 
before,  and  it  is  obviously  on  this  alone  that  values 
deiKuid,  since  value  is  simply  a  comparison. 

The  only  effect  of  a  general  and  equal  cheapening  of 
all  things  would  be  to  increase  the  rewards  of  labor  and 
waiting.  Wages  and  profits  would  be  higher.  Things 
would  be  cheaper  in  the  sense  of  getting  more  of  them 


s^T.  ■ 


Cost  0/  Production  the  liondnlor  „/  r,dnr.      107 


icrifices  will 
\vi  business 
lie  tliiin  the 
tital  will  he 
iij^  iiicreiiHe 
fall ;   when 

*,  each  man 
producing, 
•  are  to  use 
essngcs  of  a 
illiiig  wliou 
iced.  With- 
i'   would   lie 

nportnnt  in 
ear  in  mind 
cost  of  pro- 
i.  If  by  a 
one-half  the 
;  every  coni- 
)  of  the  cost 
;he  same  as 
that   values 

iieapening  of 
of  labor  and 
ler.  Things 
lore  of  them 


for  our  work,  but  not  in  the  sense  of  getting  more  of 
<*ne  commuility  for  another. 

I.ni.n.vcnents   do   ahvays,   i„   practice,   air-.-t   values 
when  they  are  introduced,  becau.se  no  inv.M.tion  is  u„i. 
v«'«.sally  applieuble.     Coniing   as    thoy  ,1..,  i„   sin-de    i... 
.luHtries.  they  have    the   ollect   of   h.wering   the  "values 
"f  the  connnodities  wiiose  production  they  nuike  easier 
than   ,t  was  before.      It   is   to   be   observed   that   they 
also  mcrease  the  i'ewards  of  all  producers  who  ..so  the 
cheapened  articles.     The  fall  of   value  is  obviously  the 
process    by   which    in.provements   in    single    industries 
;'xtend  their  benefits  to  the  whole  community.      Every 
""i;roven.ent   that   lessens  the  labor  of  producin..  any 
article  in  general  use.  a.lds  to  the  general  prosperity 

.Sn,ce.  m  the  long  run,  improvements  are  n.ade  to  .some 
extent  m  every  industry,  it  follows  that  to  .some  extent 
the  effect  of  improvements  in  the  long  run.  is  rather  to 
raise  wages  and  profits  than  lower  the  values  or  prices 
of  commodities.  Perhap::  a  better  way  to  express  it  is  to 
say  that,  in  the  long  run.  improvements  raise  wages  and 
profits  without  lowering  values  or  price.-. 

It  need  to  be  thought  necessary  to  show  in  political 
economy,  that  labor-saving  improvements  nre  not  injuri- 
ous  to   the   laborers.      There  was   formerly  among   the 
laborers  or  the  old  world  .  .strong  dislike  of  machinery 
on  the  ground   that  it  took  the  place  of  men.  and  de'- 
priv-d  laborers  of  the  opportunity  to  earn  wages.    There 
IS  no  doubt  that,  temporarily,  the  introduction  of  ma- 
chinery  on   a   large   scale   may  give   rise   to   hardships 


.,-^.. 


i/fiasiKammmmmiiM 


108 


htlUiwl    Economy. 


tmtil  tliiiiKS  adjust  tliemselvcs  to  tho  now  situation. 
Ihit  wIk'11  lu.'cossary  cliiuiyos  nro  made,  every  liibor- 
Huviug  contriviUKH!  is  a  benotit  to  the  eouiinuiiity. 
The  disitliiced  laborers  soon  Hud  other  euiiiloynient, 
and  the  couiuiuuity  a.s  a  whole  has  a  greater  return  for 
its  laltor  tlian  it  had  before.  1  think  that  in  America 
machinery  needs  no  defence. 

Of  Bilk  In  I'roduotlon.— It  U  usual  to  naiiic^risk  as  an  element  in 
cost  of  production,  but  it  does  not  seem  to  niu  tliat  risk  is  an 
element  distinct  in  kind  from  the  necessary  labor  and  waiting. 
Personal  risks  to  health,  etc.  incurred  by  tho  producers  are  iii- 
clude<l  in  the  (juantity  of  labor  reipiired.  [See  p.  98].  Uisks 
to  tho  capital  employed  are  no  burden  in  themselves.  The  real 
burden  is,  in  part,  the  labor  of  taking  precautions  against  the 
danger,  and  in  part,  the  labor  of  repairing  the  damage  when 
loss  occurs.  Tho  burden  of  risk  is  therefore  resolvable  into 
labor;  it  simply  adds  to  the  quantity  of  labor  necessary  on  the 
average  for  accomplishing  a  given  result.  The  business  of  in- 
suring against  loss  by  fire,  shipwreck,  etc.  is  simply  a  useful 
device  for  distributing  the  actual  losses  among  all  who  incur 
the  risk :  a  small  jjayment  by  each  of  them  is  ordinarily  suf- 
ficient to  make  good  tho  losses,  and  leave  a  profit  for  those 
who  conduct  the  insurance. 

The  risk  of  loss  to  individual  employers  and  dealers  by  a  fab 
in  the  value  of  their  goods,  is  strictly  no  part  of  the  burden 
of  production,  since  it  affects  only  the  comparative  earnings  of 
particular  individuals,  and  not  the  general  result  for  the  whole 
community.  What  one  man  loses  by  a  fall  of  value  other  men 
gain,  since  they  get  that  particular  commodity  more  cheaply 
than  they  could  naturally  have  hojied  to  get  it.  These  risks 
involve  a  chance  for  gain  as  well  as  a  danger  of  loss. 


V  Bituation. 
very  liibor- 
coiiimuiiity. 
inploymciit, 
'  roturn  for 
ill  America 


m  element  in 
lat  risk  is  an 
tuid  waiting, 
lucers  are  iii- 
).  08].  UiskH 
res.  Tlie  real 
a  against  the 
Janiage  when 
isolvable  into 
essary  on  the 
usiness  of  in- 
nply  a  useful 
ill  who  incur 
ordinarily  suf- 
ufit  for  those 

Eilers  by  a  fait 
)f  the  burden 
^e  earnings  of 
for  the  whole 
lue  other  men 
more  cheaply 
These  risks 
loss. 


CHAPTKU    XTI. 

BXOBPTIONS  TO  THE  GENERAL  LAW  OF-  VALUE. 

1.  The  Value  of  Natural  Wealth. -Tlio  general  law 
of  value  eonsidercl  i„  the  i.recedi.ijr  ol.apter  applies 
only  t..  w.uilth  c,„  wlM..h  lal.or  has  bee.,  be.stowe.l  .sin.r 
that  alcMe  has  a  cost  of  production.  Things  that  hav. 
come  to  mankind  as  .simple  gifts  of  the  Creator  ar.inire 
an  exchange  value,  as  we  have  seen  in  Chapter  V 
when  the  demand  for  them  as  a  gratuity  exceeds  the' 
supply. 

The  value  of  natural  wealth  of  any  kind,  at  any 
particular  place,  is  wholly  under  the  control  of  the  de- 
mand. The  supply  being  fixed,  whenever  the  deman<l 
at  any  given  value,  exceeds  that  supply  the  value  ris^.s' 
In  every  place  where  population  is  i.icreasing,  this  rise 
of  value  is  us(.aUy  progressive.  It  is  the  process  by 
which  tlie  demand  for  the  natural  wealth  of  the  region 
18  kept  down  to  an  equality  with  the  fixed  supply" 

There  are  two  checks  on  this  local  rise  in  the  value 
of  natural  wealth.  The  first  of  these  is  the  power  of 
men  to  move  away  to  other  places  where  there  is  tess 
crowding.  The  second  is  the  continual  cheapening  in 
the  cose  transportation,  which  enables  men  to  bring 
the    materials   of    production    from   regions   where   the 

109 


"■-T*«»rn*t-»»n»; 


i,. 


no 


IStlitical    Kcumiiiy. 


liM'iil  (luiimiid  in  Niiiiill  Id  |iliic('.s  wlu'H!  it  Ih  ^roat.  Of 
(M)urHu  Uiiii^H  HO  traiis|iorl<!il  cuum;  to  )>u  Ntriclly  iiutiiriil 
wealth  and  Ikm  unit'  wealth  jimdiieed  l»y  labor,  their  valiio 
lieiii}^'  re<^iilated  liy  tiie  eost  of  Itringiii^'  them.  Hut  in 
t!ie  |ila<(!  to  which  they  are  broii;{ht,  the  maUfrials  of 
lirodiietion  flervu  thu  Hamu  lairpoHu  uh  if  they  had  been 
prociued  on  the  .spot.  The  additi»»niil  sni>idieH  obtained 
from  citlier  i»l:u:es  keep  down  the  value  of  the  home 
Hupply. 

Hiieh  thirif^R  aa  do  not  admit  of  transportatifm  may 
riso  indetiniU'ly  in  value  in  the  crowded  portions  of 
the  world.  Ah  already  noted,  land  for  building'  pur- 
poses is  the  most  imi)ortant  artida  of  this  character. 
Yet  even  the  value  of  building,'  laiul  is  greatly  affected 
by  the  ehea]»eiiin<^  and  ([uickcininy  of  transportation. 
In  one  .sonso  tiie  dema.id  for  building  ground  in  the 
cities  is  diminished  by  the  facility  with  which  men, 
whose  business  is  in  the  city,  are  enabled  by  the  rail- 
roads to  have  their  homes  in  the  country.  But,  on  the 
other  hand,  the  railroads  enable  vastly  greater  numbers 
to  conarogate  in  the  cities  than  could  find  subsistence 
there  without  them.  The  result  is  that  cheap  tran.s- 
portation  tends  powerfully,  in  the  long  run,  to  raise 
the  value  of  city  lands. 

2.  Products  that  cannot  be  increaied  in  Supply. — 
There  are  a  few  products  of  human  labor  which  cannot 
be  increased  at  will.  Old  pictures  and  statuary,  old 
furniture,  and  all  relics  of  by-gone  times  are  of  this 
nature.    The  value  of  all  such  articles  is  governed  by 


H  ^roat.  <  >f 
idly  natural 
•,  their  valiio 
i-iii.  Hut  in 
uuiU;rials  of 
oy  lia»i  been 
lies  obtained 
if   tlte  home 

irtation  nmy 
jiortionH  of 
uildinj,'  pur- 
is  character, 
ntly  aH'ected 
[UiHiiortation. 
ound  in  the 
which  men, 
by  the  rnil- 
Uut,  on  t!n) 
ter  numbers 
.  subsistence 
nheap  trans- 
un,  to   raise 

n  Supply.  — 
rhich  cannot 
statuary,  old 
are  of  this 
governed  by 


fi'rejHujtu  It,  the  O^nrral  law  of  V„h,r.        \  |  \ 

Iho  demand.     As  the  supply  is  fixed,  when  ti;e  demand 
for  them  at  any  «iven    price    bee,„„es  Kreater  or  less 
'«"  tins  supply,  the  price  rises  or  falls  so  as  to  restor. 
the  e(|iialify. 

Works  of  art  even  by  livin«  ,„p,Hters  have  their  value 
•l"t.^rm.ned   i,.    the    same  way.      Though    subje.t  to  i„. 
m-ase.  they  cannot  be  indeJinitely  inerea.sed,  since  only 
o".'  IK..rson  in  each  case  h„s  the  «ift  of  pn„iucin«  then 
I"  I>r«.t,ce  it  is  n,.arly  ..  if  the  .supply  of  such  works 
were  aksoluudy  lin.ited.      The  den.and    for  the  produe- 
t.on«  of   real  artists  is  always  »re«tly  in  excess  of  the 
Hupply.  except  at  values  far  above  that  of  other  thin«s 
having  the  same  cost  of  produr;tion. 

The  inventor  r.f  any  new  article  is  given,  by  the  laws 
of  n.ost  countries,  the  exclusive  right  of  nmnufacturi,.. 
U.e  arfch,  for  a  limited  tern,  of  years  (in   the  I'nitcd 
States  seventeen  year,.).     An  article  covered  by  a  ,mte,.t 
"my  be  classed,  as  far  as  the  general  bo.ly  of  pr,.lucers 
are  concerned,  with  things  that  cannot  be  increased  in 
^     H..pidy  at  will.     Yet.  in  practice,  such  articles  are  pro- 
duced freely  in  answer  to  the  demand.     The  effect  of  the 
patent  is  to  enable  the  owner  of  it  to  obtain  an  extn 
profu  or  royalty  on  the  n.anufacture.     In  other  wonls  it 
enables  him  to  hold  t..e  n.arket  value  somewhat  above 
the  natural  value.- that  i.s,  if  |,i.s  invention  should  meet 
with  a  ready  demand. 

There  is  „  constant  effort  on  the  part  of  producers  and 
traders  to  obtain,  as  regards  ordinary  cmmoditie.s,  a  sim- 
ilar advantage  by  the  u.se  of  trade-marks.     Where  trade- 


^J 


112 


Jhliliial    Kionnmij. 


iiiitrkH  ciijny  l('j»iil  pfoti'ftinii,  ilicy  I'lintiln  tin*  proituonr  of 
iiti)'  coiniiKiilily  In  k)'<>])  rxcliiMivit  control  of  llic  iiiarkol 
for  his  ovt-n  |iui'ti('itli>r  luaiid  or  "  iiiiikt! "  of  tlio  articlo. 
Tlio  primary  I'lluct  of  trado-inarkH  may  1h!  to  Hi-rvo  as  a 
guuraiitt'o  of  (|uality  f(»r  tlio  coiiNumi-r,  They  hiivo  tho 
coiiHUiiutr  Hotiiu  trouhh.'  of  invi'sti^ation  vX  vm\\  purcluiHU. 
But  for  this  very  rcaHoii  th«'y  may  tmahli!  tlio  jiosHcsHor 
of  an  (>Htal)lisli(Hl  hraiid  to  o))taiii  moro  for  \m  product 
titan  otliur  lus8-knowu  produoers  aro  gflting  fur  tliu  sauio 
quality. 

3.  Product*  of  Skilled  Labor.  —  The  valuo  of  produds 
rucjuiriiig  Hpccial  skill  or  lon^'  traiiiinjj  on  tho  part  of  tlio 
producers,  is  not  fully  I'outrolltjd  hy  tl»!  cost  of  produc- 
tion. Such  i)roducts  aro  jmrmaiHtntly  hij,du!r  in  value 
than  ordinary  products  umdu  by  tho  Humc  quuutity  of 
labor  and  waiting. 

Tho  reason  is  tvvo-f(dd.  First,  tho  need  of  skill  limits 
tho  number  of  jmrsons  who  are  able  to  nuike  these 
articles :  tlu!  general  mass  of  laborers  are  eil'uctually 
barred  out  fntin  the  business  by  lack  of  this  essential 
qualitication.  Secondly,  the  dcuuiiul  for  these  products, 
if  they  were  oll'ered  for  sale  at  their  natural  prices, 
wouhl  far  exceed  tho  supply  which  this  limited  num- 
ber of  lab((rer8  can  jtroduco.  The  high  value  is  caused 
by  this  large  demand  acting  on  a  restricted  supply. 

But  why  do  not  more  of  the  laborers  learn  tho  neces- 
Bary  skill?  The  answer  to  this  is  that  it  is  costly  to 
acquire  skill ;  further,  tho  outlay  is  for  a  somewhat  dis- 
tant object.    The  same  reasons  which  prevent  the  mass 


linMliu'nr  (if 
ihf  iimrkfl 
I  lli<!  arti<'l«). 
<)  Hvrvi)  lis  II 
icy  Huvi)  tlm 
(')i  purcliiiHu. 

Il(!     |MiHHt'H,S<ir 

liJH  prodiKl 
for  till)  Hiiiiiu 

(»f  iir(i(lu(aH 
i?  part  of  tilt! 
tt  of  prodiic- 
uT  ill   viilue 

i|uuutity  of 

F  nkill  limits 
iiiuk(!  thuHit 
0  ufluctually 
]m  osNciitiiil 
jHc  products, 
tural  pric(!H, 
iiiiitcd  nuin- 
ue  is  ciiusud 

supply. 

•n  the  neces- 

is  costly  to 

•mewhat  dis- 

Mit  the  mass 


^^'''••'1'"' '"  ""•  ^'•'"•'■"f  r- /  v„i„.,      ,,3 

•.f  lal.or..rs    from   an,,.iri..«   ..pital.  uk.   pn-vniTIIZ 
from  aciiuir  iiLf  mLiIi       l-  '  niciu 

Willi,..  /.       ^   /  ^""'  """•"«   ^''""'   »^"  aid.,  «,.d 

:;":;:::,:::,  r:t;r:.,:M " ■'"" 

"!')  }oiiii^r    lalion-rs,  party  ,„>  ,l(.iil.f  U.  , 

"',;;'M.Hi ,;::;;;,,;:r:::';r"- '""'■-■''"'" 

"'"»  "  l"lfii»  Hmt  th..  ,„„„l..r  of  „„.r,  i„  i|„.  .b,i|   I 

;:;;;::'  '";t  ■• «" ' '"">• ""  ^^t 

"I   Hkill  tiiat  Won  d   r.'adilv  niII  ■■>  m    •  . 

Ti-  --I'i".-  i.i«i ! :,,;:: ,";"""" • 

"lontiv  Mi<l   J.v  .1.                                       I'r."uinu  c.,i|. 
m.k,  ,,l  V  " '""""'•  "'  '"'I'"' "•"'■■»   I.. 

.m!  ,:,,,;  .::""'i,"  7" ;"""'"«-"" p««t,„„. 

K  pro.uiu.r.s.     i|„5  rule  of  (.qual  rowfinlq  fn,.  „       i 

than  that  of  th.,,' '";:"  "  "7""^  "«"^'-"'"  ""-  "^'-.....0 
a  KocKl  ,I..„,  hiK,.;  ,     1 ,;,  ^  '•  "'^y  ''"•  ""y.  "«  1-1"-.^  «n.  always 

coinm.,,,  lahoHTH  to  strlv.  f ,  r  11  "''"«ta.K-o  or  inal.ility  of 

fi.^  View  the  only  p^^^:,S',:;r'''  ": """'  '""^''•■'  ^'''■"••'  ^•• 

ti.at  a  conHiaeraL"^  :«   %  :X"'',:';'^"'''''  '-"-^  '"  «>.«  fact 

'•as  to  be  borne  by  a  cla«8  ef  1?!      .    T"'^  '"  '•'"''"^'"«  '»"''"■ 
some.  ^  '  ' '  '"'"  *•'"  ""^  '""g  waiting  very  burden- 


nn.riHfi'H,  wlii.h  k.>..|m  »i/»rki't  vulun  in  tciK-h  wilh  imtu- 
rul  vuluo,  tak.'H  olV.-.t  cnly  wlii-n*  iim'ii  ..nlixnrily  rhoono 
tin  iiKluHtii.'H  that,  all  thiiiKH  r.mHi.l.T.'<l.  "in-r  iK'nt  r.!- 
tiiriiH  for  tlm  Ma.iilinm  .l.-maii.l.'d.  If  tli"  I'r.MlururH, 
.■,si...<mlly  lli<m.i  who  arn  lM'Kiiiiiiii«  lif",  niMtoiimrily  ih'K- 
l.'ct  their  Ih'hI  •.i»iM.rtuiiity  in  any  .lirt'ctiun,  thii  (nil  and 
«Uroct  control  of  natural  valnw  over  niorket  vnluu  ia  to 
that  oxtiuit  d«'f«'at4!(l. 

It  in  not.  howovor,  even  hi  tliosn  rnHCH,  wholly  pri)- 
v.'ntfd.  Tho  market  valuo  of  Mkilli'.l  produdM  iH  alwayM 
ahove  tho  natural  valuu ;  )  Jt  tht!  inU-rval  iMitwctui  thorn 
is  not  a  nrnttor  of  nuTo  mcidont.  It  <h'|K?ndH  on  tho 
nniount  of  inducomont  riH|uir.ul  in  ord.-r  to  innko  pur- 
ontH  nnd  younj?  lahon-rH  willing  to  fnco  th«  ami  of  ao- 
<HiiriiiK  skill.  At  this  iiit<'rval,  th.'  niark.-t  valiio  in 
held  in  chock,  in  th«  ordinary  way,  hy  the  coHt  of  pro- 
diKtion.  ConiiHJtition  iH  obHtrurtod ;  hut,  with  an  allow- 
ance for  the  olmtruction,  it  w(»rks  as  in  other  cnnoH. 

4.  Szohange  between  Diitant  Plaoei.  —  A  fliinilar  oh- 
Btacle  to  freedom  of  competition  among  producorH  is 
f(nnid  in  the  cnHo  of  men  in  diflerent  countries,  and 
even  in  distant  parts  of  tho  flnmo  country.  Any  two 
places  nro  distant  from  each  othtT  in  the  aensc;  hero 
intended  if  there  are  serious  impediments  to  the  free 
movement  of  laborers  from  the  one  to  the  other. 

The  impediment  may  l>o  difference  of  LmKuage,  or  of 
religion,  or  of  social  custoaia,  or  of  climaU> ;  or  it  may 
he  mor?  national  prejudice,  or  love  of  home  and 
friends,  or  the  ditlicultiea  and  cost  of  the  journey. 


1 


>ti  with  iiatii- 
i>mrily  «Iiim(M« 
(ilVtT  Im'mI  ri!- 
itt  prinlufitrH, 
itoiiiurily  iiug* 
thu  full  iinil 
)t  valuu  ia  to 

,  whdUy  i»ro- 
U(;tH  JH  iilwiiyH 
iKitwciiii  tlnun 

JK^IkIh    (III    ttlM 

t"  iimk»!  i>iir- 
lu  c*mt  of  uc- 
rkt't  vnliio  is 
i>.  ciiHt  of  i>ro- 
vilh  an  allow- 

tluT   ORHOB. 

V  flimilfir  oli- 
protlucorH  is 
;ountri«s,  and 
ry.  Any  two 
10  sense  hero 
ts  to  the  free 
e  other. 
aMf?un^e,  or  of 
te;  or  it  nmy 
if  homo  und 
i  journey. 


Kirf/ifiofiM   to   fhr    diiiftut    f.ov  nf    t',ihn> 


lift 


When  II  iriKle  exixtN  iM-tween  iw.i  |>|iii-.>n  diNtmn 
from  eii.h  other  in  nuy  of  these  wiiyn.  the  n(;tive  priii. 
eiple  Ihiit  keeps  ex.  hung.,  iin  the  linMis  of  rust  of  pro. 
dnrtion    iv,    lu.kiiijr.     Tlie  .inly    reiiHoii    why    we   eun   H„y 

that  miirket  vuliie,  in  any  e.iNe  of   ex.  hiiiiK. ,  t U    t.i 

'""'"•■'"   "»  l'» -tt  "f  prodii.tion.  iM  the  fart  th.it  pr.i- 

diieers  nmy  onlimirily  Ik,  nmnl.Ml   ..n  to  .Imkim,.  nmung 
their    home    imliiHtrieM    tli.me    that    .iHer    lM,».t    r.-tnrns. 
Tlio  .liUl.nlty.  in  tra.h.  Inaw-en  .lintant  pIu.eH.  in  that 
they    are    latK..|y  prevented    fr.im    doing    t|,iM,      f,,  i|,„ 
ex.haiiKo  ..f  .•..miiK.diti.'s  hetw..en  r..ni,t,i,.M,  it  jh  tlu're- 
fore  po.ssil.1,.  that  th.'  pr.MlnctH   .,f  tho   om,   ^.hall    hav.. 
regularly   a    higher  value,  ns   compared    with    thoN.i    of 
the  other,  than  tho  vml  of   protliu  ti.in    on   either  Hide 
w.Mild    HiiggeHt.      F.ir  oxnnipl...    the   Unite.}   Ht'it.-s.    in 
trading  with    Ilra/il  ..r  with   China,  may  .irdinarily  ..h- 
tain  for  the'prod.i.t  of  tw.i  days'  lahor  here,  .•.immo.l- 

itios  that  cost  Jive  days'  lahor  in  tl tlier  eountry. 

iMirther  disenNsion  ..f  this  very  intercHting  porti.ui  of 
our  Huhject  will  he  f.mnd  under  tho  head  of  InU'rua- 
tionnl  Trade. 

5.  Things  having   a   Joint  Cost  of  Prodnotion.  —  Wp 

have  thus  far  spoken  ns  if  every  commodity  were  tho 
result  ot  II  separate  and  independ.tnt  outlay  of  pro- 
ductivo  lalior.  In  point  of  fact  very  many  pro,luct« 
are  coupled  in  production  with  other  products,  s.^  that 
the  one  is  never  produced  without  th.,  other.  The 
production  of  wheat  is  also  the  production  of  straw; 
the   j.roductiou  of  wool    inv.ilves   that  of   mutton;  the 


U6 


I 


|iriMtiii'tioii  of  btff  thm  of  hidM  aimI  tatlii#,  ute. 
Ni*iirly  I'very  nort  of  |ir<Mlui'tii*ii  Imn  mMixt  l»/-|ii<»<lii«t 
or  iiriNluotM  of  luortt  or  limn  coiiiiiicniiit  t  •     r'niiciv 

It  i)t  to  Ini  iiottiil  that  tiK'ii  I'iiitiiot  III  llwHd  ctiMm 
r«>l{ulat«t  ili«  |iro|)ortioiiH  in  wliirh  tint  Hcvfrnl  nNiiiM<inU**l 
•rtii'lnn  nIiuII  Ins  (inxluciMi.  Kiitiint  tlx«!N  tliu  ratio  for 
UH.  Ill  unlur  to  iiicruniia  or  (tiiuiuitli  tint  supply  of  iMxif 
mi  tiiiiNt  hNo  iiK-nuMO  or  diiiiiiiiNli  in  tlix  muiiio  |lrll|K)^ 
tioii  till'  Miipply  of  hiili'H,  liiiriiM,  liuir,  Uillow,  t'lc. 

T>i<*  imtiiml  valu*'  of  tin)  wlioltt  ({foi'p  of  productA 
ruHiiltii)K  front  tlui  riUNiti^  of  nii  ox  in,  ot  (:otirm>,  ilitter* 
iiiiiKul  l>y  tliu  I'oNt  of  ruiNiiit{  tliii  iiniiiiul.  Tlio  rcliitivu 
vnluu  of  uurli  m'piirutu  prodiK't  in  tint  t^roiip  i|c|K'n(U  uii 
coiiipiirutivi'  Niipply  iiiid  <li<iiiikiiil,  Tliu  i*troii({or  tliu  do- 
iiiiiiid  for  I'lU'li  product,  in  coMipiiriHoii  with  itM  quantity, 
tliu  lii^litT  ilH  ndiUivu  valiiu. 

Ku[iiH)Hu  that,  nt  thu  oxiHtitig  pricuH  of  lH<(>f,  hidun,  and 
tiillow,  thu  duiiiiind  for  Ixiuf  int'rutiHOH,  without  incrunm; 
t)f  duiuiiiid  for  thu  othur'  prodiictH.  Thu  prico  of  huuf 
will  riNU.  TliiH  lunkuH  tho  rniNinp;  of  uxon  more  protitnhlu 
than  huforu:  thu  pr  -'uctiun  of  beuf  will  )m  incn^asud. 
Jtiit  thin  briiiKH  also  an  ,  i.  rcuiml  HUpply  .if  thu  n.,rto(  iatud 
productH ;  and  8ii:  '  U.'ru  J'.  no  increiwo  of  duiimnd  for 
tliuBe,  thu  prico  of  thorn  muHt  fall  in  order  to  crontu 
more  deiimnd.  In  thu  ond,  what  is  gainud  hy  thu  riflo 
in  the  value  of  bouf  is  lost  hy  thu  fall  in  valuu  of  thu 
ossociaU'd  produ(!t«,  -the  conihinud  vuluu  of  thu  whole 
group  tundiiij,'  always  to  confona  to  thu  cost  of  producing 
tho  animal  from  which  thuy  an;  made. 


Ull«4r,    ute. 

nil  iiMiN-iitt«'*t 
ihn  rntio  for 
ujiply  of  Untf 
NitiiKi  |)rii|H)r< 

of    proditcU 

co»rm>,  ilnUff* 

Till)  rfliitivd 

|(    lil*|N>tl(U  oil 

iiii^ttr  tliu  (lo- 
itH  (iiiAiitity, 

>(!f,  hi(li>N,  and 
lioiit  iiicinniNi! 
price  of  hoof 
loni  i»rolltultl« 

\w    iucTV.fKHvA. 

rho  i'..rto(  iiittMl 
if  doiimnd  for 
ilor  to  crento 
I  liy  thu  riHU 
vnliu)  of  thu 
of  till!  whole 
t  of  pruilucing 


t  Arbitrary   l«c«pUon.,    -Th«n»  \*  n  further  (•Iiu.m  «>f 
<"i'"|'li..,m  lo  tlu,  K..,„r,,|  law  of  v»lu...  nrii.jn«  fn.m  l«. 
f'Mlioin,!  i„t..rf..r..iM„  will,  il»,  f^.,,  ,,,,„,.  ,  ;  ,„.|iutry. 
An    .■xaiii|,|..,   now    r..itiii,.,t,.|y    „„,.  I,    ,ur..r    tlirin    in 

forimir  lii,,.,-.  {«  „hui  in  tlu.  .« f  ,|,i„„,  ,,^0, |  |,y 

-InVBii.  Hluvo  |«l,or  i*  n..t  H.la|,t.M|  f„r  uny  l.„t  il,..  .rial- 
««t  .HvuiHUlon,.;  usually  it  in  ..onlli....|  to  „  f.,w  iii,l.i«tri..«. 
rt  \n  not  o,M.„  to  ihrt  h|„v..«  to  l..av«  tli.m.,  i.J.utri.^H  wl,..,i 
th..  |.ru.|u.t.  fall  Ih.Iow  tli.tir  natural  vahui ;  n.i  ia  it  for 
th..  iiiahU.rH  int.»ri.«t  to  wjth.lruw  thoiii.  Tli«  r.«Milt  In 
that  tl.«  valiu,  of  «|av.,  pnuLutN  may  In,  ,H,rman..ntly 
tH-low  that  of  oth..r  thiii«H  mad.,  in  tlu,  muno  country  l,y 
"H  »)<iual  .|uaiility  of  fn..,  hihor. 

In  Honin  <■»«..«  uumi  who  tra.ln  in  H..v..ral  .•oniino.|iti.,« 
«inKh-  r.ut  on.,  of  th..Mi  for  ..x.-.4.tional  tr..atrn..nt,-i,..t. 
tuiK  tl...  pri...  „f  it  rallHT  with  a  vi..w  to  .Irawii.K  '•"Htoni- 
ern  Uiaii  t..  makiiiK  «  prolit.     Tlu,  .■oniino.lity  hoI«,.u„|  f„r 
tho  puriKme  n...,.N  to  ht,  ..„.,  in  .onimon  „«„,  „«  t..  tlui 
usual  pri(«  ..f  whi.-h  th..r.)  is  ^«n«ml  knowl...lK.,.  «„  that 
th«  huyor  may  n-oogniz,.  u  j^o,„l  hargain   wh,.,,  ..no  \% 
•'n"r.'.|  t..  him.    In  Hu.h  oanog  tlu,  .hmlor  coiiiitH  on  mak- 
".«  i<P  for  th.    la.k  .,f  pn.lit  ..n  his  ,l.,o„y.  hy  iiuTcaHinu 
liiH  .sal.sH  of  otlu.r  things. 

Till,  ruHult  is  H<.m.!tim.!s,  howov..r,  t.)  (,.stal>IiNh  f..r  a 
timo,  ft  h.w  price  for  the  articl.,  at  all  th.,  (.,m,K,tinK 
«l'<.i.H.  It  i,s  comm.Mily  uiul,,r8t<,o,l,  f„r  oxampl.,.  that 
r.'ta.l  groc-rH  in  m.mt  parts  of  tlu,  Cnitcl  SUit«8  have 
••"•t  lH..,n  making  any  proHt  l.y  tlu,  sah,  of  «ngar  for  a 
numl>er  of  years  paat.     Tlu,y  havo  ha.l  t..  co,„iKm.sate 


118 


J'tilitirtU  Heonomy. 


thcmaulves,  of  cjurae,  by  ciinrgiiij;  hiylier  prices  for  other 
things. 

7.  Combinations,  Trusts,  etc.  —  f  ii  some  cases  those  who 
have  a  conunoility  for  sale  are  able  to  combine  to  keep 
up  the  price  of  it.  At  the  time  of  writing  these  pages, 
there  is  much  talk  of  "trusts"  and  other  conibinations 
for  raising  the  prices  of  various  articles.  If  a  commod- 
ity be  produced  in  a  few  places  only,  or  by  a  few  large 
establishments  only,  its  price  may  be  Kxed  by  agreement 
between  the  producers  rather  than  liy  competition. 

In  order  that  the  price  may  be  kept  much  above  the 
natural  price,  those  who  njake  the  combination  must  be 
able  to  i)revent  other  men  from  entering  the  busines.s. 
This  they  can  do  in  the  long  run,  only  l)y  gaining  control 
of  most  of  the  available  sources  of  supjily. 

A  combination  controlling  the  whole  sujtidy  of  a  com- 
modity might  extort  from  the  consumers  any  price  it 
chose.  But  even  in  such  a  case  the  monopolists  might 
discover  that  it  would  not  be  for  their  own  advantage  to 
cliarge  much  more  than  the  natural  price.  A  high  price 
les,sens  the  demand  for  any  article.  There  are  few  things 
which  are  absolutely  necessary,  and  for  which  no  tolerable 
substitute  can  be  found.  Mostly,  tlierefore,  any  attempt 
to  extort  an  unreasonable  price  for  an  article  would  only 
result  hi  loss  to  the  monopolists.  They  would  have  to 
limit  their  production  very  much  in  order  to  find  a  market. 
It  is  probable  that  the  most  advantageous  price  for  the 
producers  of  all  ordinary  articles  is,  in  the  long  nin,  the 
one  that  corresponds  most  nearly  to  the  natural  price. 


ices  for  other 

ics  those  who 
hijie  to  keep 
these  pages, 
combinations 
f  a  conuuod- 
y  a  few  hirge 
hy  agreement 
petition. 
3h  above  the 
tion  must  be 
the  business, 
ining  control 

i)ly  of  a  corn- 
any  price  it 
polists  might 
advantage  to 
A  high  price 
re  few  things 
1  no  tolerable 
any  attempt 
e  "would  only 
ould  have  to 
Snd  a  market, 
price  for  the 
long  run,  the 
tural  price. 


Comhinatiom,  Truds,  etc. 


119 


Yet  it  is  undoubtedly  true  that  a  condiination  among 
the  producers,  or  even  the  chief  producers  of  a  commod- 
ity, may  succeed  for  a  time  in  raising  the  price  of  their 
l)rodu(,t.  This  is  especially  true  where  large  plant  is 
niipiired  for  the  production.  The  mere  time  necessary 
for  starting  a  competing  establishment  may  be  consider- 
alde.  Further,  the  greatness  of  the  outlay  re(iuired,  and 
the  risk  of  loss  in  facing  a  competition  with  the  comljin- 
ation,  may  deter  outsiders  for  a  considerable  period  from 
embarking  in  the  business.  To  that  e.xtent  the  com- 
munity is  always  exposed  to  injury  at  the  hands  of  a 
combination. 

Our  best  protection  against  monopolies  has  hitherto 
been  the  difficulty  of  forming  and  maintaining  effective 
combinations.  Where  the  means  of  production  are  wide- 
spread and  producers  are  numerous,  effective  combina- 
tion is  probably  impossible.  Even  where  the  sources  of 
production  are  limited,  it  has  yet  to  be  shown  that  effec- 
tive combination  can  be  made  i)ermanent.  No  monopoly 
has  in  the  past  succeeded  in  maintaining  itself  for  any 
length  of  time  unless  sustained  by  force  of  law.  In  a 
country  where  the  laws  allow  perfect  freedom  of  indus- 
try, I  think  there  is  no  serious  danger  to  be  apprehended 
from  "  trusts  "  or  other  combinations  to  interfere  with  the 
natural  course  of  production  and  exchange.  In  the  end 
every  such  attempt  is  likely  to  bring  loss  rath^  than 
gain  to  those  who  make  it. 

It  must  not  be  inferred  from  the  space  devoted  to 
exceptional  commodities  in  this  chapter,  that  they  con- 


1 

J 


f1 


120 


J'uliticul  Economy. 


stituto  a  very  large;  proportion  of  all  the  things  bought 
and  sf)ld,  or  that  thoir  value  departs  very  widely  from 
the  ordinary  rule.  Compared  with  th'J  great  mass  of 
exchanges  suhjcct  to  the  ordinary  rule,  they  are  very 
small  in  amount:  and  the  extent  of  their  departure  from 
the  cummon  law  of  value  is  not  often  ^reat. 


I 


QUESTIONS   hVVi   EZERCISES. 

1.  Explain  the  distinction  between  Vahie  an<l  Price.  Show 
that  tlio  price  of  a  thing  may  change  witliuut  a  ctiange  of  its 
value. 

'J.  Ueint'nilx'ring  tliat  every  article  may  fall  in  value,  show 
whether  all  things  inay  fall  in  value  together. 

3.  I  low  dot's  a  change  in  the  value  of  money  show  itself  ?  lias 
money  a  price  ? 

4.  What  is  meant  by  the  "equilibrium  of  demand  and  supply"? 
How  is  it  maintained  from  day  to  day? 

r>.  What  do  you  understand  by  the  Natural  Value  of  any  com- 
modity?   What  may  cause  it  to  change  ? 

0.  When  the  market  value  of  any  commodity  is  above  its  nat- 
ural value,  what  ground  is  there  for  anticipating  a  fall  ?  Should 
you  expect  the  fall  to  come  equally  soon  in  all  cases?  Compare, 
for  example,  apples,  beef,  coal,  and  paving-stones. 

7.  Are  there  any  products  whose  market  value  is  always  above 
their  natural  value  ?     Any  always  ImjIow  ?    Why  ? 

5.  Explain  carefully  the  distinction  between  employer's  Cost  of 
I'roduction,  and  the  true  or  Economic  Cost. 

0.  Show  tliat  the  employer's  coat  of  production  may  change 
without  .any  change  in  the  true  cost. 

10.  How  should  you  proceed  to  analyze  the  economic  cost  of 
producing  a  woolen  coat?  What  account  should  you  make  of 
the  loom  on  which  the  cloth  was  woven  ? 


i- 


Queationa  und  Kxcrrues. 


121 


lings  bought 
widely  from 
reat  mass  of 
ley  are  very 
parture  from 
it. 


Price.    Show 
cliiiijge  of  its 

n  value,  8how 
IV  itself  ?  Has 
I  and  supply"? 
le  of  any  corn- 
above  its  nat- 
fall?  Should 
is  ?    Compare, 

1  always  above 

loyer's  CoHt  of 

1  may  change 

nomic  cost  of 
you  make  of 


II.  Kxi>liiin  till)  ten.i  "(luaiility  of  labor  '  an  used  {■»  definiii({ 
cost  of  ]ir(i(lucti(>ii  ? 

IL'.  If  two  articles  are  produced  by  equal  quantities  of  labor 
why  can  wo  not  assume,  witlmut  further  knowlfdgc  about  thcni, 
tiiut  they  will  ordinarily  iiave  the  same  exchange  value  V 

III.  Kxiilain  the  leiiiark  that  "the  law  of  natural  value  is  simply 
the  just  rule  of  eijual  rewards  for  equal  sacrifices."  How  is  the 
rule  put  in  force? 

14.  If  one  should  argue  that  the  invention  of  reaping-machines 
h.is  benefited  farmers  only,  how  should  you  answer  him? 

\ii.  How  is  the  value  of  building  land  determined  ?  What  pro- 
ducts of  labor  have  their  value  determined  in  tlie  .same  general 
way,  and  wliy? 

10.  Suppose  a  niachino  invented  that  gives  us,  for  half  of  the 
previous  labor,  an  article  formerly  made  by  hand;  should  you 
expect  the  value  of  the  article  to  fall  to  half  of  its  old  value. 

17.  Is  there  any  connection  between  the  value  of  products  of 
skilled  labor  and  their  economic  cost  of  production  ? 

18.  How  is  the  value  of  wool  determined?  Supjwse  the  demand 
for  mutton  should  increase  without  increase  of  demand  for  wool, 
how  and  by  what  steps  would  the  value  of  wool  bo  affected  ? 

in.  In  what  cases  are  "  trusts  "  likely  to  succeed  in  maintaining 
high  prices  ?  What  is  necessary  in  order  to  insure  iiermanent 
success? 

20.  Supposing  it  were  possible  for  all  producers  to  combine 
effectively,  what  effects  should  you  anticipate  from  a  universal 
system  of  trusts? 

21.  How  do  you  explain  the  fact  that  a  diamond  necklace  is 
worth  so  much  more  than  a  barrel  of  flour,  —  seeing  that  bread 
is  so  much  more  necessary  than  jewelry  ? 

22.  Supiwse  a  man  loses  $1 ,000,000  by  a  fall  in  the  price  of 
wheat,  show  wliether  the  world  is  poorer  by  that  amount. 


,,UU*J**.W 


CHAPTER  XIII. 

OP  PRICES.  OR  THE  VALUE  OP   MONEY. 

1.  Importance  of  Changes  in  the  Value  of  Money. — 
Tlie  value  of  money  is  expressed  hy  the  general  level 
of  prices.  When  the  value  of  money  rises  the  change  is 
shown  by  a  general  fall  of  prices,  and  vice  versa.  Money 
has  itself  no  price ;  a  dollar  is  always  worth  a  dollar, 
whether  the  exchange  value  of  money  be  high  or  low ; 
but  every  change  in  the  general  level  of  prices  makes 
each  dollar  worth  more,  or  less,  of  other  things  than 
it  was  worth  before. 

So  far  as  the  mere  exchanging  of  products  is  con- 
cerned, it  obviously  makes  no  difference  to  the  exchan- 
gers whether  the  prices  be  all  high  or  all  low.  If,  for 
example,  a  man  has  a  hundred  bushels  of  wheat  to 
e.xchange  for  cotton  cloth,  it  makes  no  difference  to  him 
whether  the  wheat  be  a  dollar  a  bushol  and  the  cloth 
ten  cents  a  yard;  or  the  wheat  five  dollars  a  bushel 
and  the  cloth  fifty  cents  a  yard.  It  is  only  compara- 
tive prices  that  tell  in  simple  exchange.  If  the  price 
of  wheat  should  change,  the  price  of  cloth  remaining 
stationary,  that  would  alfect  the  values  of  the  two 
articles. 
122 


*!=: 


The  Value  of  Momy. 


123 


IBY. 

f   Money. — 

eiioral  level 
le  change  is 
•8«.  Money 
th  a  dollar, 
igh  or  low; 
rices  makes 
things  than 

lets  is  con- 
the  exchan- 
ow.  If,  for 
f  wheat  to 
ence  to  liim 
d  the  cloth 
s  a  bushel 
ly  coinpara- 
tf  the  price 
remaining 
)f    the   two 


Hut  tht)ugh  thi!  gfuural  level  of  prices  is  imniatorial 
in  simple  ('xchange,  it  is  highly  inipditant  in  some 
other  ways.  Much  of  the  hu.sinf.ss  »;£  ihe  world  involves 
agreeinents  to  pay  money  in  the  future.  All  loans, 
especially  loans  for  long  periods,  such  as  are  represented 
by  city,  state,  and  national  iiond.s,  are  ot  this  character; 
also  all  contracts  for  the  iuture  delivery  of  goods  at  set 
prices.  If  the  value  of  money  change  in  the  meantime, 
evidently  the  basis  of  the  agreement  is  disturbed  to  the 
disadvantage  of  one  of  the  jiarties  to  it. 

Again,  the  wages  of  laborers  (including  salaries  of  all 
grades)  are  agreed  upon  in  money.  Every  general  rise 
or  fall  of  prices  lowers  or  raises  the  rciil  wages  of  all 
persons  who  work  for  hire.  Of  course  the  wage  agree- 
ments may  be  revised;  but  they  are  never  revised  at 
once,  and  for  mere  temporary  fluctuations  of  prices  they 
could  hardly  be  revised  at  all. 

2.  Market  Value  and  Natural  Value  of  Money.— True 
money  is  always  a  product  of  labor.  Every  nation  has 
the  power  to  choose  the  product  of  which  its  money 
shall  consist.  In  past  times  there  was  a  good  deal  of 
diversity  in  the  money  of  different  peoples;  some  used 
cattle,  some  iron,  some  bronze,  and  some  silver;  others 
used  shells,  others  salt,  and  still  others,  tea.  In  modern 
times  all  civilized  nations  agree  in  using  gold  and  silver. 
The  essential  qualities  of  true  money  are  that  it  shall 
have  a  value  of  its  own,  that  it  shall  be  convenient,  and 
that  it  shall  be  as  little  as  possible  exposed  to  fluctuations 
of  value. 


) 


124 


jyUirnl    Ki'onomy. 


True  money  beiiij,'  a  itnidiicL  of  lul)or,  it  Iiiih,  like  all 
other  pidtluL'tH,  a  natural  or  normal  value  deijendiiig  on 
tiie  cost  of  proclucing  it.  Also  it  lui.s,  like  all  other 
products,  a  market  value  depending  immediately  on 
supply  and  demand,  hut  tending  in  the  long  run  to  con- 
f<»rm  to  the  natural  value.  There  are,  liowcvi^r,  some 
notable  peculiarities  in  the  case  of  money  which  call 
for  a  special  discussion  of  its  law  of  value.*  In  tlio 
present  chapter  wo  shall  confine  our  attention  to  ita 
market  value  alone. 

3.  Meaning  of  the  Supply  of  Money.  —  The  supply  of 
money,  like  the  .supply  of  every  other  article,  is  the 
amount  of  it  offering  in  excliange  for  other  things. 
Hut  the  supply  of  every  other  article  is  kept  down  liy 
the  constant  drain  made  upon  it  by  the  purchases  of 
consumers.  The  amount  of  it  in  the  market  at  any 
time  consists  mainly  of  newly-made  specimens.  In  the 
case  of  money  there  is  little  or  no  buying  for  con- 
sumption. We  buy  it  {i.e.  give  other  things  in  exchange 
for  it),  not  intending  to  keep  it,  but  to  pay  it  away  again 
for  other  things.  The  supply  of  money  consists,  there- 
fore, mostly  of  old  pieces.  The  same  old  money  is  paid 
again  and  again  for  goods,  until  it  becomes  so  worn  as 
to  need  recoining. 

Now  every  time  a  piece  of  money  is  used  in  making 
an  exchange,  it  counts  in  the  supply  of  money  quite  as 
ettectually  as  if  it  were  a  new  piece.  It  follows  that 
in  ordet  to  ascertain  the  supply  of  money  in  a  country, 
we  should  have  to  do   something  more  than  merely  to 


Him.lli    >;.gi.i. 


Tfte  Driiuniil  /or  Monrif, 


I'.T) 


ns,  liku  nil 
[jL'iuliiig  on 
I  all  other 
diiitely  on 
uu  to  coii- 
I'vcr,  soiiio 
which  ciill 

3.*     Ill     th(! 

ion   to  its 

supply  of 
cle,  is  tho 
ler  things, 
t  down  by 
rchnses  of 
et  at  any 
s.  In  the 
;  for  con- 
I  exchange 
iwny  again 
ist^,  there- 
ley  is  paid 
lo  worn  as 

in  making 
y  quite  as 
lows  that 
n  country, 
merely  to 


•  ount  th-  nundM'rof  d(,lliira  or  poniids  in  its  currnncy ; 
we  should  have  to  take  into  a.T.,unt  tlic  nunilnir  of 
times  ea<  h  dollar  is  used  in  exchange  in  a  given  peri(Ml. 
This  is  called  the  KapidJty  of  (  ircuhition  of  money. 

The  rapidity  with  whicij  money  circuhitcs  in  a 
c<.untry  dei)ends  partly  on  the  husincss  arrangcm.'nts 
and  partly  on  the  tciniH-ramcnt  of  its  jMnplc.  \\\, 
shall  have  occasion  t«)  discuss  tho  subject  fully  a  little 
farther  on. 

4   Peculiar   Character    of  the   Demand   for   Money.— 

The  demand  for  money  is  also  marked  by  two  notable 
peculiarities.  The  first  of  these  is  its  remarkable!  sUnmU- 
ness.  Money  being  the  medium  for  making  e.\chang(;s. 
the  demand  f(.r  it  is  as  great  as  the  d.-mand  f..r  all  olhei 
things  put  together;  the  demand  f(.r  ev('ry  other  thing 
presents  itself  first  in  tho  form  of  a  demand  for  the 
money  wherewith  to  buy  it. 

I'ntMng  the  same  fact  in  another  way,  the  demand 
for  money  consists  of  all  the  things  ofleiing  for  .«ale,  or 
necling  to  be  sold.  Evidently,  therefore,  it*depends'on 
the  total  i.roduction  of  things,  and  this,  as  we  easily  .see. 
must  be  slow  to  change.  It  follows  that  the  demand' 
for  money  has  greater  steadiness  than  the  demand  f(.r 
any  other  thing.  Changes  of  fashion,  so  powerful  in 
other  ca.se.s,  have  no  effect  on  tho  demand  for  monev, 
since  they  imply  no  change  in  the  total  prmluet  of 
the  world's  industry. 

Again,  merely  anticipated  change.^  of  supplv,  owing 
t<>  changes  in  the  conditions  of  production,  can  have 


120 


J\ililieiil  K 


roniiini/. 


but  littlo  intluoiico  on  tliu  (li'iimiiil  fur  moiif)'.  If  thu 
wheat  (Tup  tlirciiUniH  to  lio  tlcfirioiit,  tlio  <ii>inati(I  ft»r 
wliciit  iiicnMist'H  and  the  viiliic  riMCH  at  oiint.  If  a  iit>w 
(•.opjH!r  iiiiiu)  JH  (liHcovcivd,  tim  (li'iiiaiid  fur  copixT  fallw 
off  at  (»i»('o:  iiittMuliii}^  laiytTs  will  not  luiy  niiicli  at 
tliu  old  valno,  and  iioIdfiH  of  it  must  lower  tin;  price 
liefore  n  Hingle  pound  of  the  new  copper  is  in  the 
niarkut. 

Hut  tho  denmud  for  money  docn  not  fluctuate  for 
sucli  causes;  it  can  1h!  chauyed  only  liy  chaii><;in;,'  the 
total  ([uantity  of  thinj»H  for  .sah;.  To  ^ive  u|>  deniandin}r 
money  would  he  to  give  up  trying  to  «yll  goods.  I'ur- 
ther,  it  would  Ih)  impossible  to  get  metre  mcnoy  for  goods 
this  year  because  tho  supply  of  money  is  likely  to  be 
greater  next  year.  Trices  are  as  high  already  as  the 
existing  supily  of  money  will  allow  them  to  be,  on  cn- 
dition  of  selling  things  as  rapidly  as  they  are  pr    '■  -"d. 

The  secoiul  peculiarity  of  the  demand  f>,r  ui. 
that,   being,  in    fact  a   demand    for  other  thing.".,    . 
satisfied  with  any  substitute  or  representative  of  act 
money  which  will  answer  equally  well  the  ror.l  end  ni 
view.     Now  we   shall   see  presently  that  men  have  in- 
vented some  excellent  substitutes  for  money,  —  together, 
unfortunately,  with  sonu;  very  bad  ones.     A  very  small 
proportion   of   tho    payments   made   for  goods    in    this 
country  are  now  made  with  coin.    We  find  mere  paper 
evidences  of   the  right   to  /get  g(»ld  and   silver  on  de- 
mand a  more  convenient  sort  of  currency  for  ordinary 
purposes  than  actual  gold  and  silver  coins. 


1^ 


How  I'rpfH  tnv  Futit, 


127 


oy.      If  the 

(ii'iiiaiid  Tor 
).  If  n  nuw 
ropjMT  fiillw 
ly  iiiiicli  lit 
IT  tlu!  iirict! 
r  is  ill   tliu 

liictiiatn  for 
liini}{iii<4  till) 
>  ilcniitii(liii^ 
,'outls.     I'lir- 
oy  for  j,'oo(|h 
likely  to  bo 
aiuly  as  tho 
I  be,  OH  r',(|. 
I  pr    *■   "'l 
;r  kill 
l»iii^.;R,     . 
ve  of  act 
ruhl  end  in 
en  linve  in- 
,  —  together, 
very  small 
•da    in    this 
mere  paper 
Iver  on  de- 
for  ordinary 


'I'hi'    rt'Hiilt    in    that   tint   ndi'i    <>S    j,'immI«    fur    Hiile    hits 
now   iH-niine   It  iKiiiihiiil    infhtT  than  ii   real  ilriiiainl   fur 

trill'  iiioiiey.      It  in  in  prmtict.  a  d and  for  lln'  iiii-ri' 

ri^dit  to  ),'i't  true  ninii..y  in  cusi-  of  need,  bnt  with  a 
practifal  certainty,  in  inoMt  niHeH,  that  the  scHer  will  liiid 
the  mere  ri^ht  itself  entirely  sutlicient  for  his  purpose. 
In  fact,  then,  tho  real  demand  for  money  in  limited  to 
fiueh  a  Hiim  as  may  enable  the  banks  and  the  TreiiHiiiy 
to  pay  coin  to  every  holder  of  the  right  to  get  coin,  who 
chooses  to  exercise  his  right. 

I  shall  not  wait  in  this  chapter  to  discnss  the  various 
fiubstitutes  for  money,  and  the  pecnljiir  elicits  of  caih. 
Our  present  task  is  to  consider  the  operation  of  supply 
and  demand  in  determining  the  market  value  of  money, 
or  the  general  h^vel  of  prices  at  any  given  time.  For 
the  moment  we  shall  regard  as  money  everything  that 
the  people  aocejit  as  money.  Since  true  money  and 
all  the  honest  suhstitntes  for  it  rise  and  fall  in  value 
together,  we  run  no  risk  of  falling  into  error  by  tempo- 
rarily treating  the  whole  currency,  whatever  its  amount 
and  composition,  as  if  it  consisted  wholly  of  true 
money. 

5.  How  the  General  Level  of  Prices  is  Fixed.  — The 
problem  of  the  value  of  money,  or  the  general  level  of 
prices,  is  one  of  considerable  difficulty.  In  order  to. 
master  it,  the  student  must  cojisider  carefully  every 
point  in  the  case.  , 

In  the  first  place,  it  is  to  be  remembered  that  things 
must  be  sold  as  fast,  on  tho  whole,  as  they  are  produced  ; 


128 


JhlUiHtl  iii'oMymff, 


uthcrwiMu  tliu  iniirki'U  iMiooino  gliiltcil.  Tlut  ufTurtN  of 
tint  iinKiui-i^'H  (111*1  tluiilurH  ari)  diriM'tiMl  tnwurdii  (liitnin- 
iiiK  fi>r  all  urtiilcs  tli(^  hij^ht'Mt  jiriccs  iit  wliicli  tim 
wlinlt)  prtidtii'l  will  Hi'll.  Tlu)  |iiiMluct'rH  am  «'!(|K'i'ially 
ltiton'Ht<'(l  ill  Imviiig  tlui  \^x\w  um  high  aH  |MmHiliI«.  Tlifl 
dfaliTH,  howuvur,  iiiuhI  tnko  cnn>  that  tlu;  ({uihIm  on 
hand  nlmll  iiiovo  off  an  miiidly  as  new  g<MKl8  romo  fur- 
wnrd  from  tho  prtKliiciTH.  If  tlu'y  llnd  pnMlnctM  urcuniu- 
lalinj^  on  tlu'ir  liand«  thny  nnist,  in  Hclf-iirotiTtion,  w-t 
thti  i»rit«'n  lowiT,  both  wlion  tlmy  buy  and  wluin  thuy 
Hull. 

Now,  in  order  that  oxclmngo  nmy  knop  pace  with 
lipHlnction,  it  Ih  nofuHmiry  that  tho  atnonnt  of  inonuy 
dt-niunded  for  tho  wholo  prodnct  i)f  iinlnHtry  Hhall  Iw 
roughly  oqual  to  th«  wholo  HUpply  of  nionry  offering 
for  goods.  In  other  wordH,  if  you  adtl  together  tho 
prices  of  all  tho  goods  no-jding  to  ho  sold  eaeh  week, 
tho  sum  of  thoni  nmst  bo  roughly  equal  to  the  aint)unt 
of  money  tho  buyers  arc  able  and  willing  to  spend  in 
tho  purchase  of  goods  each  week. 

If,  for  example,  tho  nggregatts  of  tho  prices  nsked 
for  tho  week's  ]-roduet  be  one  hundred  nnd  two  mill- 
ions, and  the  people  have  only  one  hundnid  millions 
to  siMJnd  in  buying,  it  is  clear  that  about  two  per  cent 
of  tho  goods  must  remain  unsold.  In  this  situation 
prices  must  fall;  that  is  to  say,  the  vnluo  of  money 
must  rise. 

If,  on  tho  other  hand,  the  prices  asked  bo  ninety- 
eight    millions,  tho   supply  of  money  bouig  a  hundred 


^. 


I  ••(TortH  of 
nU  (ilitaiii- 
wliii'h  tliu 
rsjKH'iiilly 
Hilil.!.     Till* 

({IKhIn     (III 

I  coiuu  flir- 
ts tier  (I  III  u- 

tlMtioll,    W!t 

wlu!ii  they 

pmio  with 
of  iiioiiuy 
y  Hhiill  Ih) 
[»y  dfrcriii}^ 
f,'(!thi'r  thii 
Mich  week, 
ho  amount 
i>  Bpuiul  ill 

icos  nskod 
two  inill- 

(l   inillioiis 

)  per  cent. 

)  situution 
of  money 

1)0  ninety- 
a  hundred 


Jf»v*  IVirtu  ar0  tSavit, 


199 


millions,  th«i  nlockH  mi  ihn  hiiiidH  of  the  iliMiliTH  will 
^iit  Hold  fiiHtt^r  thiiti  iii'W  ^o4mU  can  ho  fniinil  to  iv|ilni'r 
tlu'iii.  Ill  thin  cuHo  tho  {irii'fH  iiiUMt  rUu;  ihut  is  to 
nay,  tlio  valiui  of  money  iiiUHt  fall. 

Since,  howi'vcr,  ImyiiiK  and  Mcllin^'  are  only  the 
H«'|iariit*'d  hiilvcH  of  iho  general  fxi  liaii;^!!  of  |irodu('tM, 
the  [iiii'i'M  {laid  aro  on  tlitt  wholt;  idonliinl  willi  the 
pricos  received  It  may  Hcem  therefore  that  the  ImyerH 
liiny  pay  aa  much  nn  they  receive,  and  that  there  in 
really  no  limit  to  the  priceH  that  might  he  charged  and 
paid. 

This  would  lie  true  if  product  were  exchan'»ed  ilirectly 
for  product,  using  the  price  of  each  Hiniply  a«  a  ineaiiH 
of  comiHirison.  Hut  where  money  of  any  kind  has  to  he 
UHed,  thero  is  at  once  n  qucHtion  of  the  Hullleieney  of 
the  Hupply  of  it  to  carry  on  the  cxchangoa  ut  a  given 
scale  of  prices.  No  part  <if  the  money  can  he  in  two 
placeH  at  once.  Everywhere  that  a  paynufiit  iH  being 
made,  there  mu8t  he  money  enough  to  make  it ;  and 
tho  same  money  cannot  ho  used  in  making  another 
exchange  until  tho  receiver,  or  somehody  else  riiceiviiig 
it  from  or  through  him,  uhcs  it  again  in  buying  goods. 

This  brings  us  back  to  tho  two  things  which  deter- 
mine the  supply  of  money ;  the  ([uantity  <if  it  in  cir- 
culation and  the  rapidity  of  its  circulation.  The  quan- 
tity being  a  simple  question  of  tho  numlxjr  of  dollars 
in  use,  it  is  not  likely  to  iwrplex  tho  student.  Wa 
shall  consider  in  tho  next  chapter  tho  circuniHtances  on 
which  tho   quantity  of    money  depeiuls.      The   circum- 


-"'  atjjSfW'i'i'f  jtM"  'iBMiiwjej 


J- 


uo 


i\tfitiefti  Ktonomjf, 


•Uiiiii'M  •lotiTiiiiiiiiiK  't«  rii|iitliiy  of  cirnilitlinti  iin*  oi|iiall)' 
inlliit'hiiiil  ill  lUiiiK  tin-  K<tiii'riil  m«|..  u(  |irii<H,  mul  uru 
nt  lli«'  Haiiu-  tiiiio  itiiitli  li'MM  MJiii|i|c.  W.'  iiiiiHl  tliiTi"- 
font  try  In  ^uin  mniiHt  il.itu  ii|i>ii<«  ri-jiiihliiij^  tliftn, 

6.  TTii  MoTtmtnta  of  Monfjr.  Tin-  imivi'iut'iitH  nf 
xwm<y  ill  .litiiil  nn-  .•x.ic.|iii;^|y  iiuiiiaU",  luit  tli«rii 
hm  fiirtiiiii  j^ri'iit  nirruntM  of  «ir<iiIutioii  whirh  iin-  <rn. 
iiU'il  niid  ili'U'rmiiiuU  hy  tlii>  hiiNinoMM  nrrimKi'iiH-ntu  of 
oavh  cumitry.  Tliuuo  ant  not  ImnI  to  l'..IInw,  iiml  tlioy 
nm  Hiillicii.iit  at  It'aHt  to  I'xiiliiiii  tlio  iiifaiiiiitf  of  "rap- 
i<lily  of  ciniilatioii"  in  its  luariii^^  on  pricfs.  In 
utmlyiiig  thorn  tin-  foljowinj,'  Iiint;t  may  Im  lu'lpfnl. 

(«0  It  in  iiioHt  coiivi'iiiciit  Ihtc  to  roiiliiH'  our  attcii- 
tion  to  i»riotm  nt  ri'tail.  Tlion^jli  t|u>Hi,  nr«  not  uniform, 
not  iK-ing  fully  untU-r  tho  control  of  coniiM-lition,  nuvur- 
tliclcMs  it  iM  at  rotail  tliat  tin-  Into  «'x«iiaiim'  of  protluctM 
Ih  I'd'fctcil.  Till)  tranHfiTH  of  jrootis  from  tlif  jirodncorN 
to  wholi'.sah)  nicrtliaiitH,  ami  from  thi-Nu  to  tint  rctiiil 
niorclmiit«,  look  townnh  tlm  final  nalo  to  coiiHumorH  ami 
nru  (li'HijfiKHl  to  fatilitnt*)  this.  For  our  pniHont  puriiow', 
pricon  at  whoK-salo  may  Ik-  n'j,'aril<(l  m  oonformiiiK  to 
lirict'fl  nt  retail,  with  an  interval  Hullioiciit  to  j^rivi-  tin- 
retail  iiu'rcliant  the  ordinary  rnto  of  profit  Tho  name 
priiicipio  runs  hack  tliroii^di  the  t-ailicr  priccM  in  tho 
Horics,  till  wo  roach  tho  original  paymont.M  for  produotivo 
InlH)r.  Tho  whole  <!liain  of  price»  and  pnymontH  may  bo 
regarded  a.s  conforminj?  to  the  lovol  of  prieoH  at  retail, 
with  neowHary  intorval». 

{b)  When  money  ha«  once  been  U8e<l  iu  the  purchnBe 


loll  iiri!  i>i|iial|) 
TirfK,   iitiil   iirii 

•'   iiiiimI  tlii>rtt. 
iiK  tliftii, 

IIDVlMIICIltM      of 

U',  liiit    tlutnt 

ivllirli   iiri>   ITIN 

riiii){i>mfiitM  iif 
low,  mill  tluty 
iiiiiK  «)f  "rni»- 
i  pricoM.  Ill 
>  lii'l|ifitl. 
lie  our   ritti'li- 

iKit  iiiiifonii, 
n'titifiri,  insvur- 
[I*  of  |iro»lurtii 
tin*  iiiii(luc(>r« 

to  tim  rt'tdil 
iiDNuiiiurN  ami 
mnil  piiriioNc, 
oiiforiiiiiig  to 
t  to  give  till* 
t.  Tho  «ntno 
pri«'«>H  in  tlio 
"or  pnxliiftivo 
imnitM  may  lie 
•Jct'H  lit  retail, 

the  piirclinBe 


JTA*   M<'»rmtHU  t\f  Mitnfif, 


m 


iif  ^ihhIm  for  tlii^  liti)'«>r'M  ('oiiNtiiiiption,  it  nuiitot  Ih*  iiiml- 
liitly  \m\A  ii^iuit  until,  ill  lint  ••oiirMo  of  liimlmmH,  noim-lMuIy 
iigiiiii  ri>c«>ivun  it  ill  |Hiyiiii>iit  for  lahor  or  wiilting,  uikI 
iIhmwi'p*  to  H|H'ii<l  ll  ill  timt  wiiy.  If  tlio  ri'<  .ivi-i  hIiouM 
cliiHwit  to  unvn  ii  for  imyiiij^  whj^i'h  to  productivo  l(il»ori'r», 
or  to  «pt'inl  it  ill  piiyi"H  for  uon-proiliHtivi'  mrvirim  of 
luiy  kiinl,  th«  cir«Miliitiii«  jH-iiod  in  lil<tly  to  Ini  |oiiyi-r 
tliiiii  if  lin  hIioiiIiI  liity  K'**"'-*  witli  it  liitiiNt>If.  Agniii, 
if  tho  r«<'«ivi'r  of  tin*  wap-n  NhotiM  in  turn  mivn  it  for 
UMt!  in  hiring  anothtT  iiinii.  iiisti-ml  of  ImyiiiK  good^ 
with  it  for  liiiniDlf,  tin-  tin  ulating  |tcriud  in  liki-ly  to 
1)1!  Htill  fiirtlit'r  longtlu'iu'il. 

(fl)  AfLiir  oai'h  iimo  of  money  in  Imyiiig  goodM  for  tho 
huyi'r'ii  own  foiiHinnption,  tho  ltUHiii»?s«  arrangi'iiicntH  of 
tliu  country  may  rt'ijuiro  it  to  mnko  n  roiiHiiliTahU)  cir- 
j'uit  h«'foro  it  (III!  ri'nch  tho  iktnoii  who  is  noxt  to  uho 
it  in  Hiinilar  hnying.  Tho  iiiontjy  tliat  payn  for  ^o(hIh  at 
rotail  iiiiiHt  liml  its  way  back  tlinnigli  all  tin)  «haiinul» 
Ity  which  tho  goodH,  and  tho  matorialn  for  making  thom, 
conii)  forward  in  th«  oourmt  of  production  and  tsxchango. 
Somo  of  it  miwt  go  to  each  jwrHon  whom)  lahor  or  wait- 
ing aidH  in  jirodiuung  j.;  'odn  (»r  in  conveying  them  to  tho 
coiiHiinM'r.  The  nuiiilier  of  handfi  through  which  it  muHt 
pa.sH  in  it!aching  the  next  man  to  h|m-iii1  it,  and  the  delay 
ut  each  itngu  of  its  passage,  determine  tho  length  of  time 
thnit  must  elapso  between  each  use  of  money  in  paying 
for  good.T  nt  retail,  and  the  next  similar  use.' 

I  It  may  »>««  well  to  Hlnto  that  thew)  prInclplcH  n-lat*,  not  to  par- 
ticulnr  pluci'n,  but  to  ou/zm  of  mouuy.    Kach  dollar  lH!iug  thu  \mc\M 


-ni'\'i^i^\»s<r.s,m 


^    %» t  - .  ,^]i*,|i ill  . ■_! Ji  g  »■  ^B^"^>■.' JJ' jf  m  %ims.' 


132 


Political  Economi/. 


(i/)  It  is  ovidt.'iit  at  once  tliut  thu  circulating  la^iitKl  is 
not  the  same  for  all  parts  of  the  currency.  The  KclhTs 
at  retail  spend  a  part  of  the  money  they  receive  in  liuy- 
in*,'  tilings  for  their  own  use  and  that  of  their  families. 
The  money  so  used  returns  (juiekly  to  become  again  part 
of  the  supply  acting  on  prices:  it  makes  tlie  shortest 
circuit  that  is  possihle.  Very  dillerent  is  the  circuit 
made  hy  money  which  is  used  by  the  retail  merchant 
in  buying  goods  at  wholesale,  and  then  by  the  wholesale 
merchant  in  buying  goods  of  the  manufacturers,  and  then 
by  the  manufacturers  in  Imying  materials,  and  then  by 
the  i)roducers  of  materials  in  paying  wages  to  their  labor- 
ers. It  is  clear  that  a  sum  of  money  always  taking  the 
short  circuit  could  do  much  more  buying  at  retail  than 
an  equal  sum  tliat  should  always  take  the  long  one. 

(e)  To  all  exc(ipt  the  last  receiver  (the  one  who 
spends  it)  the  money  may  represent  savings  to  be  used 
in  business  with  a  view  to  profit.  This  usually  requires 
some  consideration  and  planning.  Even  if  this  were  not 
so,  every  business  man  needs  to  keep  some  money  by 
him  to  meet  unforeseen  calls.  Each  must  therefore  hold 
the  money  he  receives  long  enough  to  keep  his  reserve 
of  cash  up  to  the  required  limit.  In  fact,  at  any  given 
moment,  the   money  of  the  world   is   mainly   held   by 

equivalent  of  every  other,  the  individual  pieces  of  money  nmy  ex- 
cliange  places  freely  without  affecting  the  result.  In  fact,  the  very 
form  of  currency  u.sed  in  retail  transactions  differs  from  that  chiefly 
used  in  wholesale  trade.  In  the  former,  notes  and  coins  are  used  for 
the  most  part,  whereas  Uie  larger  trausactious  of  wholesale  trade  are 
settled  by  the  use  of  bank  deposits. 


>i-iiij*«uWi'«'wiw!PWP'» 


..y<y»i)j|WBiW>'ttfqr  ; 


tttiiig  period  is 
f.  Th(!  sellers 
•eceivo  in  Imy- 
tlieir  fiiiiiiliuH. 
nil!  iigain  jiart 
^  tlie  shortest 
is  the  cirenit 
'tail  iiierehant 

the  vvholosalo 
irors,  and  then 
,  and  then  by 
t(i  their  laliur- 
i}'s  taking  the 
at  retail  than 

long  one. 
the   one   who 
,'S  to  he  used 
ually  requires 

this  were  not 
ne  money  hy 
therefore  hold 
p  his  reserve! 
,  at  any  given 
■nly   held   by 

money  may  ex- 
II  fact,  the  very 
rom  that  chiefly 
ins  are  used  for 
)lu8alu  trade  are 


Two  Functions  of  Money. 


133 


business  men,  either  as  savings  awaiting  investment  (or 
re-investment)  or  ns  reservt;  funds  to  meet  emerg(ineies. 

Kven  those  jjersons  who  ordinarily  spend  their  wlnde 
inronie  do  not  part  with  all  tlu!  money  they  reeeive  the 
very  day  they  reeeive  it.  They  must  ordinarily  reserve; 
some  part  for  ctirront  payments,  until  they  can  count  on 
reeeiving  more. 

(/)  It  is  to  be  noted  that  money  has  two  distinct 
functions  to  perform  in  its  circuit,  the  one  ns  a  medium 
of  exchange,  the  otiier  as  a  vehicle  for  transmitting  un- 
invested savings  and  for  paying  wag(!s.  Tt  is  highly 
important  to  keep  the  distinction  in  mind. 

The  consumer  who  pays  money  for  goods,  uses  it  simply 
as  n  medium  of  e.xchaiige.  The  dealer,  in  his  turn,  uses 
in  the  same  way  whatever  part  of  it  he  spends.  For 
him,  however,  the  sale  of  the  goods  is  the  close  of  an 
investment.  The  money  represents  savmgs,  now  in  the 
free  or  uninvested  state.  Much  the  greater  part  of  it 
ho  nuist  use  over  again  in  his  business.  If  he  pay  it  as 
wages,  his  act  is  clearly  iu)t  one  of  exchange.  If  he  use 
it  to  buy  new  goods  at  wholesale,  this  again  is  n  cn.se  of 
i.ivestment  rather  than  of  economic  exchange.  He  gives 
free  .savings  in  return  for  invested  capital.  The  same 
h  true  when  the  wholesale  merchant  buys  goods  of  the 
manufacturer.  By  these  transfers  the  savings  relea.sed 
from  investment  by  the  consumer's  purchases  at  retail, 
are  transmitted  to  the  producing  employers,  by  whom  they 
are  embarked  in  new  investments  through  payment  a,s 
wages.  In  the  hands  of  the  laborers  the  money  received 
as  wages  becomes  again  a  mere  medium  of  exchange. 


1 


^■■asK;'ferfwa»<ya?-tjigfe»-w*>!JKa;5<;aii>3aai'!s^.gq»«»»^i»^  ■ 


134 


J'olitic'd  Economy, 


7.  Diagram  illustrating;   the    Circuits   made   by  Money 
ill  tliu  urcUiiuiy  course  u£  productiou  and  excluingu. 


V'S^ 


7^'^iiii^ 


t 


Ii::!!''.!!  i'-^^gp 
!!  1! !  !!:i.r:v:-::-:-^^ 


'i '  i I  •  •    I 

I  • ;  1 1 ;  I ;  1 1. 

\\\\'r - 


£££^^ 


ExPi.ANATiovs.  —  At  1  the  money  is  paiil  for  cnnsuinahle  com- 
iiioiUlies  at  retiiil;  at  2  it  is  paitl  to  the  wholesale  (h^ilers;  at  .'I 
to  the  producers  of  finished  coinuioilities;  ftt  4  to  tho  producers  of 
materials;  and  at  5  to  the  producers  of  machinery.  The  dealers 
and  eniployera  spend  the  portions  of  «,  </,  .7,  j,  and  7,  in  buyiiiR 
coiuinoditics  at  retail,  and  pay  as  wages  the  portions  h,  e,  h,  I, 
and  o.  (The  latter  include  salaries,  fees,  and  payments  for  non- 
productive services  as  well  as  savinjjs  paid  to  productive  laborers. 
Money  paid  as  wages  passes  through  a  hulb.)  The  recipients  of 
i\:^!  wages  spend  the  portions  c,f,  i,  in,  and  r,  in  buying  commodi- 
ties at  retail,  and  save  or  pay  as  wages  in  otiu'r  ways  the  portions 
h\  ,-',  //',  /',  and  o'.    The  producers  (>f  inateri.als  pay  the  jwrtion  n 


£ 


MiMHH>*MII«M««^fl 


ade  by  Money 


5\ 


"  I'l 


21.;. 
1  i'  ' 

'  .  . 
t  •  I '  I 

i  i 

iii'i 
II'!' 

■  I) > ., 

'"l" 
■  I'.l 

'l.  ' 
I., II 


'''I'!' 


.|.>,i 
•  III  I 


i 


3nii8ninahle  coni- 
ale  (li^alers;  at  .'I 
tho  producers  of 
ry.  The  dpalcra 
111(1  fj,  in  ImyiiiK 
ortioii8  h,  e,  h,  I, 
lymoiits  for  iion- 
(luctive  laborers. 
I'he  recipients  of 
Miying  commodi- 
ays  the  portions 
lay  the  jwrtion  n 


Cirrnita  Mialr  hi/  Mvneif. 


136 


for  inacliiiii<ry ;  and  tho  producors  of  machinery  the  portion  p  for 
materials. 

Kverylliinj;  is  a  finished  commodity  in  tho  sense  here  intended 
wlien  it  has  reacheil  the  condition  in  which  it  is  tu  lie  iis*-d  aiid 
enjoyed  as  a  reward  of  hilior  or  wailinj;.  For  exaniph>,  eoal  for 
iious(;  use  is  a  finished  commodity,  evtni  ttiou^h  coal  for  use  in  a 
factory  is  only  a  material.  The  arrows  outside;  of  the  li;:;urt;  are 
intended  to  indicati-  the  return  movement  of  jinnlncts  of  lal.or,  for 
whi<;h  the  money  is  paid,  — thus  the  on(!  at  tiie  top  inilieates  tho 
movement  of  nniterials  and  maeliinery  to  tho  producers  of  finished 
eommoililii's;  thtt  one  at  the  riiflit  the  movement  of  finished  coin- 
moilitit.'s  from  tlie  producers  to  tie;  wholesale  dealers,  etc. 

Tho  diagram  mal<es  no  jireteneo  of  giving  a  complete  picture 
of  industry,  or  of  including  all  the  movements  of  money.  For 
i!xample,  sjieculalive  trading  in  stocks,  bonds,  land,  etc.,  makes  a 
considerable  demand  on  the  currency;  but  it  may  be  regardt^d 
rather  as  keeping  a  certain  amount  of  money  out  of  use  in  pro- 
duction and  exchangfi  than  as  constituting  a  part  of  tlie  true 
circulation.  Again,  no  altcnnpt  is  made  to  separ.ate  payments  for 
transporting  goods  and  materials  from  otlier  payments;  though 
tliey  do  not  exactly  coincide  in  jioint  of  time  witli  any  other  set 
of  payments,  we  nuiy  perliaps  regard  them  as  included  in  tlie  dis- 
bursements at  wholesale.  Again,  no  account  is  made  of  tho  les- 
sening of  industrial  incomes  by  taxes.  These  undoubtedly  lessen 
HoiiKiwhat  the  rajndity  of  circulation  of  tlie  money  tlrawn  into 
public  treasuries;  but  unless  taxes  be  excessive,  or  the  procee.ds 
be  held  unduly  long,  the  proportion  of  the  general  circulation 
absorbed  by  them  is  small,  and  m.'.y  be  ignored. 

It  is  assumed  in  the  diagram  that  all  commodities  pass  through 
tlie  hands  of  one,  and  only  one,  wholesale  merchant.  In  fact,  of 
course,  many  products  are  sold  directly  to  the  retailer  by  the  pro- 
ducer, while  others  pass  through  the  hands  of  several  wholesale 
dealers.  Perhaps  tlie  two  errors  may  b(>  regarded  as  offsetting 
each  other,  so  far  as  the  rapidity  of  circulation  of  money  is  con- 
cerned. 


""^^^f^e^Sf^aa^^ii^ti  iisu»sKu»g4ffi£h^», 


j,sa-WiSS®6Ka*BiS*i3SaG3K*i|. ' 


1 


136 


PoUtit'Jil  Emnomy, 


8.  Application  of  the  Foregoing  Principles.  —  I.(!t  iim 

now  siiiii»isi'  tlic  tiimjiicy  of  u  country  to  consist  of 
?1. ".0,000,000,  (listril>ut*'<l  uinoii},'  the  circuits  of  our  iliii- 
j,'riiiu  us  iiiilicntcil  in  the  followiny  tiiMc.  Assuming  for 
8iin|ilicity  that  each  receiver  of  money  holtlti  it  for  a 
week,  we  group  t.gether  circuits  of  the  same  length. 


1(<'tiiniiii|;»t 


Ainiiisiit 
I'irculutiiiK. 


nrciiliitliiK 
lu'riml. 


('f>rr<-«|i(iii(lliiK  aiiiiply  of 

niiiiify  fur   iiiitrhaKt'ii 
lit  rctiiil  ciu'li  wt'ok. 


J  anil  d  .  . 
''',./■, -mil  f  . 
i\  i,J,  and  1/ 
A',  III,  and  r  . 
I'  ami  (/  ,  . 
II  aii(ly)    .    . 


.rl(),U(t(»,(Kio 

LM,(HIO,(XtO 
•.';,(KH>,(XI0 
KI,lK>l,l)0() 
l.'d,lXK»,(HKJ 
1S,()00,0(K» 
(1,()(M(,()()<) 


.iiir)0,ooo,0()0 


1  wft'k. 

2  weeks. 

3  " 

4  " 

5  " 
(i        " 

r,,  (1,  7  " 


$10,()0(),000 

12,0(Kt,0(K) 

0,'XlO,(MK) 

10,(RKI,(HN) 

5,000,1  HK) 

3,000,0(H) 

(say)      l,(X)0,(Hioi 


$,')0,<KH»,(HM» 


The  weekly  oiitimt  of  consumable  coirmoditios  offered 
at  retail  in  the  country  must,  under  these  conditions,  l)car 
an  aggregate  price  of  about  ^50,000,000.  This  will  deter- 
mine the  general  level  of  jn-ices  in  the  country.  The  rela- 
tive cost  of  i)roduction  of  each  commodity  will,  of  course, 
determine  the  relative  price  of  each,  i.  e.,  its  value. 

If  the  amount  of  money  in  circulation  should  be  in- 
creased to  8200,000,000,  distributed  in  the  same  way, 
the  aggregate  price  of  each  week's  product  would  be 
>  Divided  between  j,  I,  o,  and  q. 


=TC3TE= 


L 


les.  —  Fxit  UH 

U)  consist  i>f 
ts  (»f  our  tlia- 
Assuiiiiiig  f(ir 
iiltl;!  it  for  ii 
iinu  luiigtii. 

■•potKliiiR  aiiiiply  of 

iMfy  fur  liiltvhiiKi'ii 
rctiiil  (•iicli  week. 

$10,000,000 

12,0(K),0OO 

0,000,000 

10,000,000 

6,000,0(10 

3,000,0»H) 

y)       l,(X>0,(KIOl 


$50,<HM),(NN) 


(litios  ofTt'nul 
riditioii.s,  licar 
lis  will  detin- 
•y.  The  rela- 
ill,  of  course, 
;  value, 
hould  be  in- 
e  same  way, 
ct  would  be 


The  Cause  of  "  Dull  Times" 


1."h 


rnlMcd  from  !* f. 0,000, 000  to  867,000,000.  If  cacli  r.-- 
ceiver  of  iiioiiry  sliould  coiik!  to  hold  it,  on  an  avi'i.ij,'!', 
one  day  lon^'t-r,  i\n'  i\'i'^rt'<^;\U'.  prii'c  would  have  to  fall 
from  !#  50,000,000  to  about  i* 42,000,000. 

If,  the  supply  of  money  remaining'  tinchniiffcd,  the 
aj,';,'n'<,'ate  produ(.'tion  of  commodities  should  be  incrca.'u'd 
suy  ten  per  cent.,  the  price  of  each  article  would  have 
to  be  lowered  roughly  ten  per  cent,  in  order  to  sell  the 
whole  jtiodnct. 

The  money  transactions  of  a  commercial  country  are  of 
(!our.se  much  less  simple  and  uniform  than  (jur  diagram 
and  this  hypothetical  case  nuiy  seem  to  imply.  But 
whatever  their  complexity,  they  are  governed  by  the 
same  general  principles  as  the  simple  case;  the  supply 
of  money  oH'i'riiig  for  goods  has  the  same  dependence  on 
the  quantity  of  money  in  circulation,  and  the  rapidity  of 
circulation  of  the  diH'erent  portions. 

A  study  of  our  diagram  may  also  help  to  make  clear 
the  two  functions  of  money  (p.  133),  and  the  resulting 
connection  Itetween  the  payment  of  wages  and  the  ex- 
change of  commodities.  If  anything  occurs  to  check 
the  payment  of  wages  at  h,  e,  h,  I,  or  o,  it  is  easy  to  see 
that  the  supply  of  money  offering  for  goods  at  1  must 
fall  off  in  consequence.  In  fact,  the  lessened  sales  to 
laborers  constitute  the  real  lessening  of  wages  in  such 
a  case.  The  situation  is  that  known  under  the  name 
of  "dull  times,"  or  a  depression  of  business. 

9.  Deficiency  of  Money  looks  like  an  Excess  of  Ooods.  — 
The  popular  explanation  of  a  business  depression  is  usually 


■h 


138 


I'lilitii'til  Kt'omninj. 


th..'  iiuiy  pniiniKMlitifs  nrc  prfMliKind.     Tho  niHN'iir- 

iiiuH)  '  ,  lilt"  iiiarktls  ti'itiiiiily  fiivors  tliis  vio'.v.  Tluut!  in 
an  iipiiaiviit  .siiipliis  uf  (<v(ry  coiuiudtlity  ;  a  ruiil  .siir|iliiH, 
if  iiiu'  can  lie  inia>,'int'tl,  couM  lianlly  look  diU'ert'iitly. 

lint  tliosi!  wliK  icf,'artl  tins  an  a  case  of  goneral  <»Vfr- 
imtiluctitMi  art!  nii.sK'd  liy  inurt'  aitin'araiice.s.  They  forgcit 
10  inasst's  (»f  iictiph;  who,  in  tiincis  ctf  hn.siiKs.s.y  doprcH- 
sioM,  HuH't!!'  f(»r  want  uf  thcsi'  very  tilings  that  scimh  to  his 
ill  lixccssivo  supply,  and  would  ghidly  givo  thuir  lanur  in 
return  for  thcni. 

The  real  tiouhle,  nt  such  ft  time,  lies  in  the  hesitation 
of  husiness  men  as  to  the  investment  of  their  saviii-'s. 
The  money  and  siihstitntes  for  money  that  are  ordinarily 
paid  for  lahor  as  rai)idly  as  new  money  is  reeeiveil,  an; 
l>aiily  allowed  lo  lie  unused  in  the  liaiiks.  The  result  is 
tliat  those  who  live  hy  wages  nro  t\iiable  to  buy  as  freely 
as  usual.     The  circuhition  of  money  is  checked. 

Just  why  business  uien  are  more  pori)lexed  and  slower 
to  iiiv(!st  at  some  times  than  at  otlier  tinitis  is  a  (piestion 
we  tannot  now  attempt  to  answer,  —  it  is  in  fact  a  most 
dillicult  (luestion.  Usually  these  periods  of  depression 
fcdlow  periods  of  strong  coulldeuce  and  prompt  invest- 
ment. Tiie  change  from  brisk  times  to  dull  times  usually 
begins  with  the  f-ulure  of  some  ill-judged  ventures  of  a 
speculative  character,  carried  on  liy  means  of  borrowing 
and  other  forms  of  credit.  The  losses  cau.sed  by  these 
failures  often  involve  sound  business  houses  in  disaster. 
In  consequence  of  them  trade  becomes  embarrassed,  and 
wide-spread  distrust  takes  the  place  of  over-conlidence. 


',  -j'"^  '  wr 


A'dcraa  of  Mmu'i/  l<>okn  like  n  Ihjirirui'n  of  tlooih,     139 


Tim  (i]'iM'ar- 

i0',V.      'I'lu'K!    JH 

II  null  .siir|ilii,s, 
:  (lill'eri'iilly. 
goiicral  <»vt'r- 
'I'hcy  fory(!t 

HilU!.S,"    (IcjUt'S- 

mt  HC(Mu  t(t  1)0 
tliuir  luiiur  in 

th(>  husitation 

tlioir  Huviiiys. 

aro  ordinarily 

rcc'civfil,  aro 

Tlu!  result  i.s 

buy  a.s  freely 

ocked. 

ud  and  slower 
I  is  a  (juestion 
in  fact  a  most 
of  (U'liression 
roiiipt  invest- 
tinies  usually 
ventures  of  a 
of  borrowing 
ised  by  these 
es  in  disaster, 
larrassed,  and 
•■contidence. 


The  real  trouble,  in  the  iM-riod  of  deitressiou  which  fol- 
lows, is  not  a  j.'eneral  excess  of  coiiiinodilies  but  excessivo 
cuntioii  in  the  hirin;,'  of  laborers,  i'lusiness  men  do  ,iot 
invest  their  savinj^s  in  ni!vv  enteriiri.ses  with  accustomed 
Iiromptness  and  ener^jy ;  the  result  is  that  many  laliorers 
arc  unemployed,  and  others  work  only  half-lime.  'I'lie 
aggregate  money  income  of  those  who  live  by  wages 
being  reduced,  a  corresponding  reduction  takes  place  in 
tlu'ir  usual  purchases  of  commodities.  (Joods  lie  unsidd 
on  the  hands  of  the  dealers.  There  are  not  too  many 
commodities,  but  there  aro  t(»o  many  (ommodities  unsidd. 
There  is  a  dellciency  of  purchasing  power  on  the  part  of 
the  usunl  buyers. 

The  true  remedy  woiild  be,  not  to  lessen  the  world's 
supply  of  g't'td  things  (of  which  we  always  have  too 
few),  b»it  to  restore  the  puhhasing  power  of  the  wage- 
earners.  This  could  b(!  done  either  by  r(^storing  to  the 
(dd  anjount  the  payments  of  money  to  laborers;  or  by 
reducing  the  prices  of  commodities  in  the  saints  ratio 
as  the  money  income  of  the  laboring  class  has  beisn 
diminished. 

lint  the  first  remedy  is  out  of  the  (juestion  until  the 
congestion  of  the  market  shows  signs  of  lessening ;  and 
the  second  is  naturally  resisted  by  ludders  of  goods,  since 
it  seems  to  involve  a  loss  of  their  profits.  A  business 
depression  is  therefore  an  awkward  dilemma.  It  lasts 
usually  until,  partly  by  fall  of  prices  and  partly  by  re- 
stricted production,  the  aggregate  prices  of  the  goods  for 
sale  come  to  match  the  luouey  in  circulation. 


1 


S.SKS«tt«tf<tE3;re-w«isw 


140 


IHitii'iil  JCrnmmf/. 


10.  Exo«M  of  Money  looki  like  a  Deficiency  of  Ooodi  — 

Wh.^r.  fur  any  ,..,.m„„  t|„.  s(,,.,.Iy  of  ,no,M,y  ,,x,..,mU  tlio 
•U'limiKl  for  it.  w.,  havo  tlu,  opposite  HlL.t  to  tl.at  just 
'••'i'si.l..rnl.     Th.,    n.a,liiu,s8   of   ,„..st    iktsomm   to   l.iiy   is 
I'iuiUhI  only  l.y  tluur  iiiouiih  of   purclms..      I„  tho  ca.so 
wi,  an.  now  conHi.h.rinK  tlu,  n.onoy  inroino  of  tl„.  nmss 
of  .n.,n   has   huon   incroamul.     Thoir  iMin;lm.sinK  powor 
«xci!...ls.  at   pnivir.us  priros.  tho  forthr-on.inK   supply  of 
conuno.hti<..H.      Th.,  stocks  of  co.nnio.litios   for  sal.:   Ik,- 
coino  daily  lossono.l,  h.-causo  pt-oph,  huy  faster  tlum  new 
K.H..1S  nro  pro.h„,ed.     Tlicro  is  upparuntly  u  deficient  pro- 
duction of  all  things. 

This  situntion  lasts  but  little  time  in  comparison  with 
that   in  whi.h   money  is  deficient.     Men  are  slow  and 
rclu(;tiint  t..  lower  their  prices,  hut  th(.y  are  very  prompt 
to  raise  tii.m  when  opportunity  oilers.     When  tho  sup- 
ply of  motley  is  increased  its  value  soon  falls.    This  case 
attracts  little  attention  because  it  is  of  brief  duration.     It 
rcjTularly  appears  after  a  depression  of  business,  when  the 
".oney  and  substitutes   for  money  that  have  been  h.dd 
hryvk  during  the  "dull  times"  arc  ..nco  more  put  into 
active  circulation  by  being  used  in  hiring  laborers,  or  in 
purchasing  products  of  labor  from  those  engaged  in  pro- 
duction.    It  also   appears  whenever   new  discoveries  of 
gold  add  to  the  local  supply  of  money,  and  when  addi- 
tions are  made  to  the  bank  currency  of  any  country. 


I 


■■.-"^»  ny 


cy  of  Oooda.    - 

<y  t'XCl'C.ls    tlio 

t  to  that  jiiNt 
>nn   to  l)uy   jfl 

III    tllO    VIXHO 

?  of  the  tnnnn 

linsiiijr  powor 
iiK  supply  of 
for  .siil(!  1(0- 
t<!r  than  now 
Uclicicnt  pro- 

ujmriaon  with 
iro  sl'jw  and 

very  pronijit 
hen  tho  Hup- 
s.  This  case 
duration.  It 
SSfl,  wlicMi  tho 
^0  been  hohl 
)re  put  into 
ihorers,  or  in 
iiyed  in  ;;)ro- 
iscoveries  of 

when  addi- 
f  country. 


CHAITKIl  XIV. 

PRODUCTION   OF   TUB   PRECIOUS   METALS. 

1.  Dependence  of  Prices  on  Quantity  of  Currency.  —  All 
that  now  reniuinH  to  he  done  in  ord*'r  to  oonipltit*!  our 
Rtudy  of  pricos,  or  the  value  of  nio.iey,  is  to  consider 
how  tlie  4uantity  of  nioiu'y  in  circulation  is  dotorniined. 
The  ^'oods  needing'  t(»  he  sold  constitute  the  demand  for 
money.  Tho  .supply  depends  on  the  fjuantity  cir<;ulatiu},', 
and  the  rapidity  of  its  circulation.  We  have  H(!en  that 
the  business  arraiig(!m(!nts  and  habits  of  each  country 
determine  the  rajtidity  of  circulation  of  its  money.  Our 
remainiuf,'  (juestiun,  then,  is,  What  determines  the  4Uan- 
tity  of  money  ? 

The  question  of  quantity  brings  us  at  once  to  tlu! 
source  of  money.  The  g(dd  and  silver  of  which  all  our 
true  money  consists,  are  products  of  human  labor.  The 
quantity  of  them  produced  must  therefore  depend  in  the 
long  run  on  the  principles  laid  down  in  Chapter  XI.; 
that  is  to  say,  men  can  be  counted  on  t(»  jiroduce  us 
much  of  them  as  tliere  is  a  demand  for  at  the  natural 
value. 

But  here  we  ore  met  by  a  familiar  fact  which  makes 
the  application  of  ordinary  principles  much  less  obvious 
in  tho  case  of  money  than  in  any  other  case.     Tho  dc- 


14J 


l\ililiviil  JHeonoiity, 


iiiiuid  f(.r  inom'y  \n>\\\^  nt  Itottoiu  u  iloinmxl  for  otlu-r 
tliiii|,'M,  it  i,>«  HiitisHi'il  Willi  iiiiy  ri'iiri'sMiidtivu  of  tnitj 
:iiniit')'  that  will  miswcr  tlif  n-iil  nlijoct  in  view.  W«  nil 
know  timt,  ill  [Mijnt  of  fact,  im'ii|i1c  in  this  coiiiitry  >ihu 
hiihlly  liny  j^oM  cdiu  in  oitlinury  husincN.-,  nml  imt  much 
HilviT  lii-yuntl  till)  ainoiint  nuci'ssnry  fur  hiuiiII  ihungo. 
Wo  \m\  inHti'iu»  iiifrn  promiHUH  to  pay  coin,  lunl  lij^htn  to 
•Icnminl  c.iin.  Hiippliod  to  us  by  tlui  banks  and  by  tlio 
Tivasniy  of  tlui   lJnit<;il  Stiittas.' 

So  far  then  an  our  prices  dopond  on  the  <|urintity  of 
inoni*y  in  cinuilation,  thty  dt.'i)ijnd  on  tho  quantity  of  this 
Hank  L'urruiify,  as  wu  may  c>iMV('ni«ntly  tall  it.  rhis 
uxccods  vory  much  tlio  total  quantity  of  coin  in  tho 
country.  Yet  each  dollar  of  it  purports  to  ropn'.si'ut  a 
d(dlar  of  truo.  mouoy ;  it  givii.s  tlm  holdti-  an  uufiuoa- 
tionod  right  to  gft  a  dollar  of  coin  if  \w.  wishes  it;  fui 
that  its  (luantity  mu.st  t<tand  in  aomu  dutiniU;  rolaiion 
to  tho  quantity  of  coin. 

2.  Nominal  and  Real  Demand  and  Supply  of  Money.— 
Tho  fact  is  that,  in  tho  oaso  of  nionoy,  thero  iH  a  noiuina] 
demand  far  oxceodi-ig  tho  ronl  domand,  and  a  nominal 
Niqqdy  far  e.KcutMling  tlio  ronl  supply.  Tho  nominal  do- 
luand  consi-sts  of  all  tho  good.s  nooding  to  bo  Hold ;  tho 
i-ual  ilcnmnd  i8  limitod  to  tho  amount  requisiltj  f<tr  niaiu' 
taining  oonfidcnoc  in  tlio  l)ank  curroncy  with  which  in 
practice  (sxchnngo  ui  products  is  mainly  carrio«l  on.  On 
the  side  of  BUjtply,  tho  nominal  stock  of  coin  is  as  great 

>  Fur  till'  pri'sciit  purpose  we  may  rojjanJ  tho  TronHury  as  simply  a 
gnut  baiik  JMHulng  pri)mi8i;«  to  pay  coin  ou  dfumiid. 


•?*w**??W;'*«*^'^  .--rr 


rmiiil  for  ollti'r 
liitivu  uf  triit* 
vii'W.  W«  nil 
is  country  'im- 
(iiiil  imt  iitiich 
.'•mull  I'liiuigij. 
I,  ami  ri^'htf^  to 
cs  iimi   by  tliu 

bo  (|urtiitity  of 
uiintity  of  thiM 

full  it.  Thi» 
t  coin  ill  tho 
to  repn'.soitt  n 
'.V  an  ui)(|uca- 

wislicH  it ;  no 

!tiuiU'  rtsliiiion 

Y  of  Money. — 
u  in  n  noiuiiial 
ml  a  iinminal 
n  iiomiiiul  ilo- 
I  ki  H(»I(l ;  tho 
isittj  for  nmiri- 
ivith  which  iii 
irriod  on.  On 
oin  is  ns  great 

.tury  ns  Hiinply  a 
J. 


Vtttm  ^  itrmitiu  MtUth  mt  X>i*#  <«  f''»'«"i/<.    ua 


nn  tho  whol*!  niuHM  ttf  <oin  aiitl  ri^htH  to  call  for  coin 
whiiili  conHtilut**  tho  iictivf  cnrn'ncy;  llm  roal  MtiK.k  ix 
thi>  far  smnllur  a.n«Mint  huM  an  rtwrvcH  for  ri'il.'t.niin«  tho 
Imnk  rurroncy,  iiluM  the  foin  in  atliial  cirriiliitloii. 

Till!  <H'*'HUon  of  iirict'H,  llifii,  ho  fur  a.*  it  in  a  (|iif.'ttioii 
of  tlin  <iimi»tity  of  money,  han  two  disiinrt  hramlum; 
lirMt.  Wi'at  (l.-h-rniine:*  the  actual  Mtock  of  c«)in?  and  w.c- 
ondly,  What  w'ttWn  tho  proportion  l.vtweon  hnnk  our- 
roncy  or  tho  nominal  Htock  of  ooin  and  tho  roal  utta-k  ? 
Tho  llwt  of  thoHo  (lUOHtions  ndatos  to  the  prodiK  tioii  of 
the  rnoiiey-metrtlH.  The  Heeond  involves  nonu'  elementary 
princiides  of  hanking.  Hoth  must  be  stiulied  in  onlor  to 
iniderstand  how  tho  value  of  money  iH  governed. 

3.  The  Value  of  the  Precious  MetaU  not  due  to  Coin- 
tof.  — It  ia  necoftsary  to  olmorve  at  the  iuilset,  that  Kt)ld 
ami  Hilver  havo  oti  er  uses  besides  Hervinj;  as  money. 
They  have  hnig  been  hiyhly  prized  by  all  nations  as 
material  for  jewelry  and  olIuT  ornaments,  plate,  watch- 
caHcs.  otc.  In  fact,  it  wns  the  high  value  attached  to 
them  for  theso  purposo.s  that  Uiudo  them  spocially  Huit- 
aido  for  uso  as  nionoy.  No  substance  could  be  j,'en(  rally 
used  as  money  if  it  wore  not  j^'enenilly  re^^arded  as  use- 
ful «  r  dosimble  in  itself.  In  payments  between  men  of 
dilVeiont  nations  it  would  not  be  accepted.  I'urther. 
even  for  use  in  any  ono  eountry,  it  v;ouSd  bo  defective  as 
nnmey,  because  it  wouM  lac'k  ono  of  tho  most  in!i)ortant 
influences  in  steadyinj,'  tho  value  (»f  gold  and  silver;  any 
decline  of  their  value  calls  out  an  increase  of  demand  for 
them  in  tho  arts,  thus  chocking  the  full. 


''"'■■'..•J-  '  W" 


144 


l\UUirttl  Kfiwmg, 


UmI.I  iiii.I  Milvtr  \*i'r«i  Mwnl  (IN  itMMMiy  \mUtt\^  iiiiiiiN  iiiiii 
fifiiiiiiK  wuri'  iiitr<><liin>«|,  iiml  Uifnru  tlic-n*  witm  any  lawn 
Mil  tint  >.ul.j..ii  ..r  iiM.ii.y.     It  JM  Mtill  uim  of  ili,.jr  iliiitf 
iv.niimifii.lntiniis  Umi  tli.ir  viiluu  an  vxm  m  iinli<|H>iii| 
••lit  of  tlu'  mint  iiiaik  tliry  In-iir.     Tin-  iiiiti«  mining  ml.ls 

iiotliiiiK  t.i  tlirir  valiii'.     Tin \m  may  !«•  .Ii-fu.  ..I  or  .tvfii 

iiit'lli'il  iHW'k  into  liiillinn  willimit  Iunm  <if  \aliio,  In  fa.t, 
(•uiiiM  nri'  coiiMtmitly  iiifliuil  tluwn  fur  tmu  in  i\w  ortn,  jiiMt 
a«  if  tlit>y  won)  mun*  lnillinn.i 

III  old  tiiiH'M  ^'ol.l  ami  HJlvor  |mimciI  hy  weight.  Tho 
name  of  th.,  Mn^-liMh  ••poiiiid"  Hti-rliiiK.  altliongli  it  Iuin 
now  lii'coiiH!  a  iiM-ri!  iianu',  in  a  HtamliiiK  ri'iiiimlcr  ul  tint 
way  in  wliieli  mir  wirly  ancimtors  umdiI  wilvor  iim  momfy. 
Uiiu  i*  npt  t«»  forgLt  that  tlin  njonoy-niftal  of  mir  own 
•lay  Htill  pasmm  l»y  wi-ight.  tl.oiijrh  wti  Hciini  only  to  tount 
it  as  il..llarH.  Tli«  wci^rhinj;  is  donu  om-o  for  nil  at  tho 
iiiiiitH.  The  iiamt>  ami  otlicr  marks  Htani|MHl  on  ('ach 
pi»H«t  arii  iiirrt'ly  rua.ly  j-roof  that  it  cnntaiiiM  a  (vrtain 
•liiantity  of  nu'tal.  This  is  the  n<lvaiitng«  of  coiniiiK,  that 
it  HuvcH  UH  all  trouhlu  ns  to  W(.ij»hiii^r,  a,„i  j^ive.;  ,ih  tin- 
«ol<l  ami  Hilvor  in  iiitjccs  of  uniform  mm,  thus  iivuitlin^f 
troiilili'Moiiin  fractioiiH  in  tho  reckoning. 

Tilt!  coimiKt!  lawH  of  uadi  country  fi.x  tho  woightn  ami 
naiiu!.s  of  itH  coins.  As  to  tho  «.'.xchaiigo  valiio  ..f  tho 
tsnglo,  or  tho  sovoroign,  or  thu  franc,  after  it  is  coined, 

'  Thi'Ht)  HtalHiii'iilH  uMHuiiio  uim'iitrlctcJ  Cdlnnge.    Of  C()ur8t>,  no 

wlUvrHMiill.  wi.ul.l  il.iiik  i.f  HHiiiK  ..ur  \mm'M  hIIv.t  c «  m  I'-ert. 

silv.r;  1...  nil,  bay  il...  Hllv.r  fontaiii..!  In  a  (l..llur  i.lm.  for  nb.mt 
nf(>...iM-  to  llfty-nv..  .rnlH,  They  .iro  all  moir  "tokens."  and  the 
i-mxnuv  of  thciii  Is  Hirictly  liraili-d.    Sco  Chopfor  XVI. 


•I     ■( 


/Vi»»/«( /»<'/'  i<f  i/i.lit  Duii  Silirr, 


14ft 


i'f<>ri<  (iiiiilM  uiiii 
•  WHh'  iiiiy  litWN 
M  <it  tlii'ir  rliJMf 
ill  M  iiiiti<|N>iii|> 
■n*  roiiiiii^  iiiIiIh 
tIt'flU  III  nr  t'VtJII 

NuliH'.  Ill  fact, 
ill  tliu  nrU,  juMt 

y  w.'i'Klit.  Tfio 
illlioii^li  it  ItiiH 
I'tiiiinlfr  u{  tint 
Ivtfr  UH  iiioiiuy. 
Uil  of  our  own 

I   niily  to  omillt 

for  all  at  tliu 

II1|><>(1    oil    (•iK'li 

taiiiM  II  certain 
of  cniiiiiijr,  tliat 

1    J,'ivi!.!    us    till' 

tliiiH  avititliii^r 
10  wciftlits  nti«l 

!    VallU!     of     tilt! 

r  it  in  coined, 
».  Of  courue,  iio 
tT  ciiiiiH  nH  I  >en< 
r  plt'co  for  nbout 
lokpiis,"  and  the 
'1. 


that  in  u  iinittur  ovt'r  wliirli  iln'  .i.m.i^i'  |,i\v  <  ran  Imvtt 
no  control,  nincii  it  ilr|N>nil.<t  on  tlm  \>tivi  ^  of  ^ooiIm,  ami 
tlir'Mti  no  NtatutM  atU!ni|ilH  to  n*t{ulittu. 

4.  The  Prodaotioit  of  Gold  and  Sllvtr,  —  Tliu  pr*Mtnrtlon 
of  tlio  jinriotiM  nii'titU  Ni'i'iiiN  to  III'  III  Honit'  n'M[M>ctH  ilillfr- 
«iit  from  onliiiary  imliislritm.  Tlif  lalior  roiiiiri'il  in  tlif 
|iroilui  tinii  nf  all  MiiiH-iaN  In  Iar)(i>l)'  that  of  ntt-n*  Mnurli 
for  tlu)  natural  tlt'poHitN  of  tliuni.  TliU  (•«n>niM  to  \m  n|m>- 
cially  truit  tif  goU  and  Hilvfr.  Tlicy  aru  Mcldoin  found  in 
vifry  I'xtttiiHivtt  di>|K)MitH,  a^,  fur  I'Miniplo,  coal  and  iron  ant 
found.  Tlii-y  art>  found  niilicr  in  Ncattfrod  wuNliin^M, 
v«'inH  and  "  iiockctH,"  ofti-n  of  ^ivnl  riiliiu'HM,  l»ut  iiMiially 
of  liiiiitfd  extent.  Tiu!  wanli  for  tlii'm;  is  alwayH  inoru 
or  '  MM  of  u  lottery,  and  iin  a  ruMiilt  thu  out|)ut  at  niiy  out* 
Rourcu  in  nioru  varialilo  than  in  other  niinin^  induHtrieH, 
Wheru  Hu  much  de|M>nd.s  on  luck  nnd  un  clianou  diHeov- 
cry,  it  may  m'ein  unreaMonaitle  to  Mi^'ak  of  any  eonnection 
between  the,  valiio  'f  the  pn'eioiiH  metals  and  their  cost  of 
prodiK  tion.  Yet  there  is  undoulitedly  a  connection.  It  is 
the  hi({h  vnluu  of  gold  and  silver  that  impels  men  to  search 
for  thum.  Every  fall  of  their  value  ahatuH  Honusthing  of 
thu  zeal  in  discovery ;  every  rise  iinTeaseH  it. 

Again,  although  the  result  of  one  man's  lahor  for  a  day 
or  a  week  is  very  uncertain,  the  aveni^^'e  product  of  the 
lalior  of  many  men  is  less  so.  Much  depends  on  ciuincu 
"finds"  from  day  to  dny,  but,  apart  from  great  din- 
covcricH,  thcHO  ttvorngo  theinselviw  in  the  general  result 
ft)r  pcriod.>»  of  conHidorahlo  length.' 

*  I'l-oiii  XH'Vi  til  IHUO,  iiolwitliMtiiiiiliiiK  lociil  \iiriiiliitnM,  llu'  total 
yi'ut'ly  protliK't  of  gold  fur  tlio  wliulu  world  wuit  reiuurkubly  nli'iidy, 


140 


J'olilictil  J'Jconomi/. 


Ml'II  i?()  into  tho  {tnxUu'tioii  of  j^'old  and  silver  ns  tlicy 
t,'(i  into  lishiiiLf  and  otlior  uncortain  i)ur.suil«,  Ihkmvusu  they 
think  that,  taking  good  and  bad  hick  toguthor,  men  do  as 
wtdl  in  tliat  as  in  other  things.  Even  aUowing  much  for 
tho  spirit  of  gamhHng,  which  undoubtedly  idiiys  an  active 
part,  there  is  enough  of  business  principle  in  th(!  produc- 
tion of  g<dd  and  silver  to  keep  their  value  mughly  under 
the  control  of  ordinary  rules.  When  tho  profits  of  gold 
and  silver  mining  are  on  the  whole  high,  men  will  be 
attracted  into  the  industry ;  when  they  are  low,  mou  will 
seek  other  industries  in  preference.^ 

There  are  two  sets  of  changes  occurring  from  time  to 
time  ill  the  cost  of  producing  gold  aiul  silver,  and  there- 
fore changing  the  quantity  of  them  produced.  The  first 
of  these  relates  to  the  sources  of  the  metals.  The  dis- 
covery of  new  and  more  productive  mines  may  greatly 
increase  the  yielil  for  a  given  amount  of  labor.     When 

licin;:  about  flvo  million  ounces.  It  ha."  incrcaspd  siiico  1800  to  ulioiit 
t'ij;ii(  million  ounces  iv  ywir  ;  this  is  about  fifteen  times  the  yeuily 
product  prior  to  1850.  Tlio  production  of  silver  is  much  less  steiidy, 
and  is  estimated  to  lie  about  twenty  times  iis  j;reat  as  lliat  of  f,'ol(l. 
Mitcii  of  the  silver  is  obtained  as  a  by-product  in  the  niininy  of  lead, 
copjier,  and  soino  ullicr  metul.s. 

-  It  is  necessary  to  bear  in  mind  the  precise  way  in  which  a  general 
rise  or  a  general  fall  of  prices  changes  the  earnings  of  the  gold-niincr.s. 
The  money-metal  of  a  country  has  itself  no  real  price.  It  coinage 
be  unrestricted,  an  ounce  of  tho  metal  will  always  sell  for  the  amount 
of  coin  it  will  make.  But  when  tlie  product  of  the  mines  is  coined, 
It  is  obvious  that  the  quantity  of  ordinary  commodities  the  miners 
can  get  for  their  labor  will  depend  on  the  general  level  of  i)rices. 
A  rise  of  prices,  therefore,  makes  it  harder  to  get  connnodities  by 
digging  gold. 


(SVoc/'  **/  Precious  Mdah  slow  to  Cliani/r.        147 


silvnr  as  thvy 
I,  bucMUiHu  thoy 
liur,  men  du  as 
tviiif;  iiiucli  fnr 
iliiys  iiu  active! 
ill  tli(!  iiruiluc- 
r(iu<,'Iily  uiidor 
profits  of  gold 
,  men  will  be 

low,  men  will 

from  time  to 
'er,  and  tliiTo- 
;ed.  The  first 
,als.  The  dis- 
i  may  greatly 
labor.     AV'hen 

ICO  1800  to  iihoiit 
times  the  yearly 
UR'li  less  steiuly, 

as  lliat  of  f,'olil. 

iiiiiiiiig  of  lead, 

I  which  a  general 
'  the  fiold-ininerM. 
nee.  If  eoinagu 
1  for  tlie  ainouiit 
iiiiiie.s  is  coined, 
lities  tlie  miners 
level  of  i)rices. 
conmiodities  by 


di.scovc^rios  of  tlii.s  kin<l  are  made  on  a  great  scale,  as 
happened  in  the  ca.se  of  gold  in  1S4H  and  1H49,  and  in 
the  case  of  silver  in  187"),  the  annual  out[iut  is  enor- 
mously increased.  On  tlu!  other  hand,  the  exhaustion  of 
n  part  of  the  known  sources  may  diminish  to  an  indeiinito 
e.vtent  the  current  production. 

Tile  other  set  of  chiiiiges  is  CDiincctt  d  with  tlio  mode 
of  extracting  the  metals  from  the  foreign  substances  with 
which,  in  their  native  beds,  they  are  mixed  or  chemically 
combined.  'J"he  ])rocess  of  extraction  was  formerly  labori- 
ous, and  therefore  costly.  It  has  now  been  mucli  cheap- 
ened, and  may  be  further  cheapened  by  new  inventions. 
The  immediate  eflect  of  these  impruvenients  is  less  strik- 
ing than  that  resulting  from  great  discoveries  of  gold  and 
silver,  but  in  the  long  run  their  inlluence  on  the  product 
niiiy  be  as  great.  They  make  the  output  of  every  mine 
greater  than  before.  Tliey  make  it  possible  to  resume 
tlie  working  of  mines  that  were  formerly  abandoned  as 
uiiprofitalile :  of  such  there  are  many  in  different  parts 
of  the  world.  Even  the  refuse  of  former  mining  is  now, 
in  many  cases,  worked  over  again  with  a  profit. 

5.  The  Stock  of  the  Precious  Metals  slow  to  Change. — 
While  the  production  of  gold  and  silver  is  subject  to 
greater  variations  than  that  of  most  other  things,  tlie 
total  available  supply  of  them  is  much  ^ess  variable  than 
that  of  most  other  things.  This  is  a  fact  of  great  im- 
portance in  relation  to  the  value  of  money.  It  is  due 
primarily  to  the  good  care  men  take  of  gold  and  silver, 
especially  the  former.     Gold  is  not  put  to  rough  uses  as 


148 


Jhliticnl  Economy. 


tli(!  baser  iiuftnla  nn-,  and  worn  out  or  destroyed;  it  is 
mostly  treasured  and  kept.' 

The  result  is  that  the  world  has  now  accumulated  a 
{♦rent  stock  of  yohl,  —  in  comiiarison,  that  is,  witli  the 
amount  produced  from  year  to  year.  A  good  jtart  of 
th(!  gold  on  hand  at  present  was  produced  centuries  ago; 
comparatively  Utile  of  it  is  of  recent  production.  It  is 
estimated  that  the  stock  on  hand  is  at  least  a  hundred 
times  as  great  as  the  average  yearly  product. 

It  f(dlows  that  the  fluctuations  ()f  the  yearly  product 
have  little  ellect  on  the  total  stock.  If  all  the  gold- 
mines ii;  the  world  were  closed  for  a  year,  there  would 
he  no  unusual  scarcity  of  gold.  If  they  .should  all 
double  their  yield  for  a  year  the  increase  of  gold  would 
hardly  bo  appreciable.  The  diflerence,  either  way,  vvcmld 
uot  exceed  one  or  two  per  cent,  of  the  total  quantity  on 
hand. 

In  the  case  of  most  other  things  the  whole  stork  on 


1  Of  course  gold  is  not  wholly  exempt  from  destructive  uses. 
Watcli-casca,  jewelry,  etc.,  are  subject  to  some  wear  and  tear,  al- 
though the  gold  they  contain  is  mainly  saved  and  used  over  again.  The 
gold  used  in  gilding  and  plating,  dentistry,  etc.,  is  almost,  wholly  lost 
to  the  supply.  The  wear  and  tear  of  gold  in  the  coinage  is  very  slight. 
As  used  in  the  United  States,  to  forn»  reserves  for  tlie  Treasury  and 
the  banks,  there  is  no  reason  why  gold  coins  should  not  last  thousands 
of  years. 

Silver,  being  only  about  one  twentieth  part  as  costly  as  gold,  is 
applied  to  rough  and  destructive  uses  much  more  freely  than  gold,  and 
is  accordingly  consumed  naich  more  quickly.  Even  in  the  form  of 
coin,  silver,  being  used  as  change,  is  put  to  a  rougher  use  and  is  worn 
out  more  quickly  than  gold. 


stroycd;  it  is 

iccuiiiulat(Ml  ii 
i  is,  witli  tilt! 

good  ]iiirt  (jf 
oeiiturifs  ago ; 
luction.  It  is 
tnst  a  liuiidrud 
iuct. 
•early  product 

nil  tho  gold- 
',  there  would 
iy  should  nil 
A  gold  would 
or  wny,  would 
\\  quantity  on 


»S7(«'/;  of  I'tfciuva  Metnh  slow  to  (Jhtoiye,        149 


hand  is  of  nicent  origin,  partly  lifieause  they  an;  in  tlicni- 
selves  p(!ri.slial)le,  hut  nmre  conmionly  hecauso  they  nre 
put  to  uses  thnt  destroy  them,  or  soon  wear  them  out. 
If  the  production  of  iron,  or  of  coal,  or  of  wool  were  to 
ceas(i  for  a  yiiar,  there  would  Im;  a  dreadful  dearth  of  it; 
if  the  production  were  doulded  the  stock  for  sale  wouhl 
li(i  doubled  also.  We  cnn  readily  see  thnt  the  eflect  of 
the  change  on  th(!  values  of  these  pro(lucts  would  1m; 
Viistly  greabT  than  the  elfoct  of  a  similar  change  in  tho 
production  of  gold  on  the  value  of  that  metal. 


hole  stock  on 


destructive  uses. 
ear  and  tciir,  al- 
l  over  again.  Tlio 
Imosl.  wholly  lost 
ivs;e  is  very  Klipjht. 
tlie  Treasury  and 
lot  last  thousands 

ostly  as  gold,  is 
sly  than  gold,  and 
n  in  tho  form  of 
r  use  oud  is  worn 


ClIArTKR  XV. 


BANK    CURRENCY. 

1.  Bank  Currency  More  Convenient  than  Coin.  —  (iold 
and  silver  coins  ari'  lii<,'lily  useful  and  even  necessary,  Imt 
they  arc!  inconvoniontly  heavy  for  carrying  in  one's 
l)ocket.'  It  was  natural  that  civilized  men  should  in- 
vent a  plan  for  using  mere  titles  to  coin,  or  ready  evi- 
dence of  ownership  in  coin,  while  keeping  the  actual  g(dd 
and  silver  stored  in  a  few  safe  jdaces  where  they  could  be 
readily  ol)tained  by  any  person  holding  the  right  to  call 
for  them.  Sensible  men  would  have  lieen  glad  to  pay 
something  /or  the  advantages  of  such  an  arrangement. 

It  is  the  great  discovery  of  modern  Banking  that  a 
very  admirable  arrangement  of  this  kind  can  be  supplied 
to  us  free  of  charge,  while  those  who  perform  the 
gratuitous  service  make  a  handsome  profit  from  it. 

The  secret  of  banking  profits  is  that,  for  ordinary  pur- 
poses, people  like  the  right  to  get  coin  better  than  coin 
itself.  We  need  only  a  simple  way  of  passing  the  right 
from  man  to  man  just  as  we  should  pass  coin.  Bankers 
have  supplied  us  with  two  very  simide  devices  for  doing 
this,  namely.  Bank  Notes  and  Checks.  The  two  differ  in 
several  important  respects,  but  they  are  alike  in  this  es- 

1  Two  hundred  doUar.s  in  gold  weigli  nearly  a  pound  (Troy) ;  tlie 
same  amount  in  silver  dollars  weigli.s  over  fourteen  pounds. 
l&O 


liitnk  Currency. 


151 


,  Coin.  —  (lold 
iKH'ussary,  luit 
yiiig  in  oiio's 
len  should  iii- 
,  or  ready  evi- 
Mq  actual  gold 
!  they  could  bo 
0  right  to  call 
n  glad  to  pay 
rangcmont 
•anking  that  a 
au  be  supplied 
perform  the 
it  from  it. 
r  ordinary  pur- 
tter  than  coin 
ssing  the  right 
coin,  bankers 
ivices  for  doing 
xe  two  differ  in 
like  in  this  es- 
lournl  (Troy) ;  the 
u  pounds. 


Hfiitial  point,  that  the  ellect  of  each  when  used  in  making 
a  payment,  is  to  transfer  from  one  per.son  to  another  the 
ri'dit  of  demanding  coin  from  a  bank.  Thcfir  dill'erences 
arise  from  a  diilerence  in  the  form  of  holding  the  right. 

2.  Two  Forms  of  Bank  Currency :  Notes  and  Deposits.  — 
A  bank-note  is  itself  a  proof  of  the  holder's  claim  upon 
tlie  bank,  as  well  as  an  instrument  for  transferring  it. 
Tlie  holder  of  a  deposit  has  no  such  ready  evidence  of  his 
right.  His  name,  witli  the  amount  of  the  deposit  stand- 
ing to  his  credit,  is  written  in  the  ledger  of  the  bank;  but 
lie  has  in  his  own  hands  no  evidence  of  the  fact.  If  he 
wishes  to  transfer  any  part  of  his  right  to  another  in 
payment  for  goods  or  services,  he  must  write  out  an 
order,  called  a  check,  directing  the  bank  to  make  the 
desired  payment  on  his  behalf. 

The  receiver  of  the  check  has  no  guarantee,  except 
the  character  of  the  giver,  that  the  deposit  exists.  For 
use  between  strangers,  therefore,  and  between  persons 
who  have  not  confidence  in  each  other's  honor,  the 
depositor's  right  is  much  less  convenient  than  the  note- 
holder's. The  same  is  true  of  persons  living  at  a  distance 
from  banks. 

The  note  circulates  as  readily  as  coin  wherever  the 
riglits  given  by  the  bank  issuing  it  form  part  of  the  cur- 
rency. For  these  reasons  the  note  is  much  more  used  in 
retail  trade  than  the  deposit,  since  in  retail  transactions 
the  buyer  and  seller  are  seldom  acquainted  with  each 
other.  Besides  this,  the  transactic.is  are  mostly  too  small 
in  amount  to  make  it  worth  while  to  write  out  ciiecks. 


ir.2 


Ihlilicnl  Economy. 


Oil  tlio  (tLliur  Imiid,  it  is  iinKih  Huf('r  tt»  Imvc  ii  il(*jH)8it 
to  oiiu'h  credit  at  a  l)aiik  tliaii  to  ktu'p  liaiik-iiotos  in 
oiui's  poi-kot  or  (Irawor.  Notes  art)  exposed  to  all  the 
risks  tliat  coin  would  lie  exposed  to:  they  may  bo  lost,  or 
stolon,  or  destroyed  by  Hre,and  the  loss  of  the  note  means 
tho  loss  of  the  right  it  gave.  The  deposit  is  safe  from 
these  and  all  other  .langers  except  tho  failure  of  tho  bank. 
For  men  whose  money  transactions  are  large  this  is  a  de- 
cisive point  in  favor  of  the  deposit  rather  than  the  note. 
The  deposit  liabilities  of  the  banks  in  this  ountry  are 
several  times  greater  in  amount  than  their  outatanding 
notes. 

It  is  important  to  koo  clearly  that  the  proportion  of 
bank  eurniucy  held  in  each  form  is  purely  a  matt(*r  of 
convenience  for  the  holders,  and  is  entirely  in  their  con- 
trol, unless  hampered  by  legal  restrictions.  The  holder 
of  notes  cai.  at  any  time  convert  his  right  into  the  other 
form  by  simply  "depositing"  them  to  his  credit.  The 
retail  merchant  does  this  daily  with  the  notes  received 
for  his  goods. 

The  holder  of  a  deposit  can  with  equal  readiness  ex- 
change it  for  notes  by  simjily  presenting  his  check  and 
taking  notes  in  "payment."  In  fact,  the  two  forms  are 
freely  interchanged  day  by  day  to  suit  the  convenience 
of  individual  holders.  In  ninety-nine  cases  out  of  a 
hundred,  what  is  jiopularly  called  "getting  a  check 
cashed  "  consists  in  getting  a  depositor's  right  to  demand 
coin  converted  into  a  note-holder's  right  to  do  the  same 
thing.     To  the  Ijank  it  is  a  matter  of  indiflerence  which 


Bank  Currency. 


ir.a 


lavo  a  (h^posit 
liank-iKiUis  in 
J(l  to  all  tlu! 
lay  1)0  lost,  or 
10  iioto  nioniiH 
i  is  aaf(?  from 
13  of  the  bank. 
13  this  is  a  tlo- 
liaii  tlio  note. 
s  ountry  aro 
r  outstundiiig 

proportion  of 
r  a  inattor  of 

in  thoir  coii- 

Tho  holdor 

iito  the  other 

credit.  The 
otes  received 

readiness  ex- 
is  check  and 
vo  forms  aro 
convenience 
es  out  of  a 
ng  a  check 
it  to  demand 
do  the  same 
3reuce  which 


form  of  right  the  holder  cIiuomoh.  Tin?  ell'ect  on  priceH, 
or  the  valiU!  of  money,  is  also  the  same  in  eitluT  case. 

When  a  check  is  prosenU'd  for  payiiu'iit,  the  jierson 
proHontiii;.^  it  usually  wisJHis,  not  so  much  roiu,as  pock(^t- 
monoy.  For  this  purpose  wcdl  secured  bank-notes  have 
cvtnything  to  recommend  them ;  they  ore,  ui  fact,  the 
pocket  form  of  hank  currency.  The  adminihle  notes  of 
our  own  national  hanks  aro  as  readily  current  as  coin 
in  every  jiart  of  the  Union.  No  person  would  think  of 
declining  them  in  payment  of  a  check,  unless  he  hap- 
pened to  need  money  for  use  outside  the  limits  of  the 
United  States. 

In  the  homo  trade  of  a  country,  such  notes  answer 
perfectly  well  as  a  reserve  for  paying  deposits.  So  long 
as  they  are  convertible  into  coin,  on  demand,  the  whole 
currency  is  kept  on  the  coin  basis.  It  has  therefore 
been  thought  advisable,  in  most  countries,  to  guard  care- 
fully by  law  tha  issue  of  notes ;  whereas,  the  use  of  de- 
posits and  checks  has  been  left  without  legal  restriction, 
o.xcept  in  the  case  of  our  own  national  banks. 

3.  The  Source  of  Banking  Profits.  —  The  ])rofits  of 
banking  aro  due  to  the  fact  that  very  few  of  the  persons 
who  get  the  right  to  demand  coin  ever  exercise  their 
right.  The  mere  title  to  coin  being  the  most  convenien); 
currency  for  practical  use,  the  hanks  can  .safely  count 
on  having  but  few  calls  for  actual  coin.  So  long  as  there 
is  general  confidence  in  their  ability  to  meet  all  their 
liabilities  promptly  and  fully,  they  can  safely  bind 
thoniselves  to  pay  on  demand  a  much  larger  amount 
of  coin  than  they  have  actually  on  hand. 


154 


JUitii'fit    Kcunomy, 


This  is  llu)  ri'iisoii  why  Ituiik-iiotus  iiiul  th-positH  niXi'xi 
tho  viihui  of  moiiny.  Hy  'isinj;  thi!H((  as  curreiuy,  oach 
tlollar  of  coin,  while  '\iw\i  rcjiosiiij,'  in  tho  hniik-vanlls, 
is  iiiiuh!  t(»  tlo  tilt'  work  of  stivcral  (lollars.  Th(!  aclivo 
supply  of  money  oir.'riiij»  f<ir  goods  iK't'tmics  in  clU't't  as 
i;roat  as  tho  supply  of  these  rights  to  call  for  nicuiey. 
The  rights  are  for  the  most  part  purely  nominal  no  doubt: 
any  attempt  to  enforce  all  of  them  Himultaneously  would 
show  this;  hut  their  elhut  on  prices  is  just  as  great  as 
if  each  dollar  of  thvuu  were  a  dollar  of  real  money. 

If  the  hanks  were  reciuired  to  keep  always  on  hand 
as  much  coin  as  they  bind  themselves  to  pay  on  denuuid, 
notes  and  deposits  would  Imvo  no  cll'ect  on  jtrices,  aiul 
there  would  be  no  i)rotit  in  banking.  The  gohl  and 
silver  "  certificates "  issued  by  our  Treasury  furnish  a 
good  illustration  of  this :  the  full  amount  of  coin  they 
represent  is  recpiired  by  law  to  be  k(!pt  in  the  'I'reasury 
for  redeeming  them.  The  issuing  of  them  is  therefore 
a  burden  rather  than  a  source  of  proht;  and  they  add 
nothing  to  the  volume  of  the  currency,  since  they  only 
take  the  place  of  the  same  amount  of  coin. 

On  the  other  hand,  the  United  States  notes  (or 
greenbacks)  are,  in  this  respect,  a  true  bank  currency. 
There  are  three  hundred  and  forty-si.v  millions  of  dol- 
lars (^340,000,000)  authorized  to  be  issued,  and  tho 
amount  of  coin  required  by  law  to  be  kept  for  redeem- 
ing them  is  only  one  liundred  millions. 

4.  The  Limit  of  Bank  Currency.  —  Hanks  are  primarily 
great  lending  institutions.     Their  prolits  come  to  them  in 


Bank  Cumney. 


150 


ili'jKmitH  an»;i;t 
iMirrmity,  oach 
u  Imiik-vaiiltH, 
<.  Till!  ailivo 
>s  ill  cllt'ct  nH 
II  I'nr  iiioiK^y. 
iiial  IK)  (Itiiil)t: 
lUMdiMly  would 
st  as  great  a,s 
cal  iiioniiy. 
kvays  on  hand 
xy  on  duiiiaud, 
on  prices,  and 
riio  gold  and 
iiiry  furiiiHli  a 
■j  of  coin  thoy 
1  the  Treasury 
n  is  therefore 
and  they  add 
nco  they  only 
in. 

tos  notes  (or 
ank  currency, 
lillions  of  dol- 
nied,  and  the 
)t  for  redeem- 

;  are  primarily 
lue  to  them  in 


the  form  of  interest  on  loans  made  to  liUHim-Ms  men. 
They  h'lid,  not  actual  money,  or  coin,  liut  the  right  to 
call  Oh  them  for  money.  The  liorrovver  is  irediled  with 
a  deposit  to  the  amount  of  his  loan  (or  takes  the  hank's 
notes  if  molt!  eonveiiient),  and  the  hank  receives  intercHt 
on  that  amount  <iuite  m  if  it  had  given  iuui  real  money. 

Of  cour.^e  every  such  loan  increases  the  hank's  liahility 
to  iiay  real  money.  Tlu;  loan  at  once  hecome.s  eurreiicy, 
ft»r  the  horrower  stton  turns  over  his  deposit  right  (or  the 
notes)  to  other  men,  soiik;  of  whom  may  tinil  actual  coin 
more  convenient  for  their  purposes  than  the  right  to  call 
on  that  particular  hank  for  coin.  The  hank  must  there- 
fore he  on  its  guard  against  giving  men  the  right  to 
demand  coin  more  freely  than  tlu!  amount  of  coin  it 
has  on  hand  clearly  warrants.  Any  overstraining  of  its 
credit,  any  whisper  of  a  douht  as  to  its  ahility  to  me»!t 
all  calls  promptly  and  easily,  would  he  quite  sure  to 
injure  its  husiness  and  might  even  cause  a  "  run  "  on  the 
part  of  tho.se  holding  rights  to  demand  money  from  it. 

The  limit  of  safety  for  the  hank  itself  is  therefore  the 
only  neces.sary  limit  to  its  power  of  swelling  the  currency 
hy  the  issue  of  notes  and  the  granting  of  loan-deposits. 
l>ut  what  is  the  limit  of  .safety  f(jr  the  hank  ? 

This  is  a  (piestion  to  which  no  very  definite  answer 
can  be  given.  There  is  no  one  "rule  good  for  all  cases. 
Much  depends  on  the  nature  of  theHjank's  husiness,  the 
characttir  of  the  people  who  hold  rights  against  it,  and 
especially  on  the  strength  of  the  public  confKtence  in 
the  management  of  the  bank's  allairs.     Each  bank  must 


i 

i 


J 


151 


lUUieol  Meonmnjf, 


•  htmtfort!  juilgi!  l»y  iu  own  (sxi-urieacM  whuni  the  duugur- 

Tho  iiuMt  common  mcnHioii  for  tho  duiiiaiul  of  true 
iiif»m»y  Misttiiul  of  hunk  curruiicy  in  coniioctod  with  tl>o 
(txtoriial  triulo  <>f  curli  countr)  nml  rcgidii.  IliUik  ciir- 
ruiit'v  Ims  a  limit<!<l  iirua  of  firruliition,  iMirticiilarly  llio 
)iiirt  of  it  tlint  coitsifltH  of  (luiMMit-ri^ht.s  to  tlt'iaaiul 
motioy.  Whnn  any  hoUlor  of  such  n  rij^ht  wishoH  to  u«o 
it  ill  iimkiiij,'  u  piiymon'.  nt  ii  distnnco,  there  i«  nlwnys 
II  Mtroii),'  chuntM*  thfit  mil  riiouoy  will  hiivn  to  lie  sent. 

X'lw  (111  incrciist?  of  hunL  curniiicy  in  niiy  n-gion  cfiii«(>« 
nil  ir.croasoil  <lt!iii:iiitl  for  ;,'oo(l».  More  things  than  usual 
an*  hrouyht  in  from  uUior  i)inc<!s,  luul  nionoy  luis  to 
1)0  Mont  out  to  pay  for  tlieni.  Tho  Imiiks  iirv^  cnllod  on  for 
coin,  in  such  ft  case,  by  those  holders  of  hunk  ourroncy 
who  hiivu  the  outside  i«aynicnt8  to  nmko.  For  this 
rtsiiHon  till'  hanks  at  the  yreat  centres  of  fon'iyn  tnidc  in 
ouch  countrv  no<»d  to  carry  a  strong  cft.-(h  reserve, 

5.  Bank  Currency  of  the  United  States.  —  We  hiivu 
now  four  kinds  of  circulating  notes  in  use:  1.  United 
Statics  Notes  or  (Jroctihacks  (known  also  as  legal-Unider 
not«;s,  from  tho  fact  that  thoy  are  "lawful  nione}  r.!"' 
a  legal  tender;"  tho  other  nottis  have  not  this  (luality). 
2.  (iold  (Certificates.  .",.  Silvor  (Jertificates.  4.  National 
Bank  Xt)tes. 

Tho  first  three  of  fhesii  classes  aro  issued  hy  the  Treas- 
ury. They  difliT  in  that  tho  notes  rvre  simple  prnmiscfl 
made  hy  the  United  Htii'es  to  pay  to  any  jicraon  present- 
ing Iheni  for  redemption,  tho  amount  of  money  named 


Ittinl  CHrrewt/, 


Iff 


'0  tim  duiigur- 

Mitiiil  of  triiit 
U>(l  with  tilt) 
Hiuik  ciir- 
rticularly  llio 
I  to  tli'iaaihl 
wi.Mho8  to  uno 
re  in  nIwu)H 
)  1)6  Kent 

;a  than  ti.snnl 
unwy  Ims  to 

cnllod  on  for 
link  oiirroncy 
I.  For  this 
♦'ij»ii  tnuli'  in 
erve. 

—  Wo  havt) 
3;  1.  United 
1  legal-t*!n(l«'r 
1  mono)  SP'l 
this  <iuality). 
4.  National 

by  tho  Trcftfl- 
iplo  jiroiiiisoH 
raon  prestMit- 
ionoy  naniod 


in  mvU ;  wh«mmM  tho  (UfrlilltatoH  certify  tliat  the  amount 
of  gold  or  xilvttr  nainud  in  uitclt  Iiuh  Itufii  di>{)OHitiMi  in 
tlw  Tnmsury,  and  will  l>n  imid  to  any  per;  m  |irt'-tiitjn« 
the  €«!rtifii'«tu  and  doniandiiig  dtlivury  of  Jlnttuiii.  Tlio 
Uuivn,  as  j^taU'd  iil)ovf,  uns  HUpi-orloil  l»y  a  rum-rvo  of  ono 
huiidivd  niillioi.H  in  gold ;  tlu'  ccrtilii'iittis,  as  tliiir  form 
inii»li«s,  an-  covonul,  dollar  for  doUur,  hy  gold  and  Hilvor 
coin  on  di'iMwit  in  tlio  TnuiHury. 

For  tilt)  circnlating  i»>t»'s  issiu'd  hy  thu  national  lianks* 
no  HjuH-ilic  n-'sorvi!  is  ri'tjuircd  l>y  law.  They  am  uini>ly 
p»!('urfd  Ity  a  i»ledgt!  <tf  t'niKnl  HtaloM  honds  df|KiHitt'd  in 
th(»  Treasury  Iiy  tlu'  hanks,  and  cai-h  hank  is  iiMjiiinil 
to  kct,'!*  thi!  Tn'nsury  sujiidii'd  with  lawful  money  In  tho 
I'xtt-nt  nt  livn  \K'r  cent.  <tf  its  nnistamling  notes.  Out  of 
th«  fund  thus  providtsd,  tlu)  Treasury  pays  lawful  money 
{i.e.,  gold,  silver  d(dlar»,  or  grut'nhaeks)  f-r  all  natioiuil 
hrnk  notes  jiresonted  for  redemption. 

As  to  the  (h'[)osit  portion  of  (air  eurrenoy,  the  Acts  of 
(vongresM  dniw  a  disMnctioii  hetween  national  hanks  in 
tlu'  leading  eities  mid  thow;  in  the  rest  of  tlui  country. 
City  hanks  are  renuired  to  limit  their  deposit  liahilities 
to  a  hundred  dollars  for  nvery  twenty-five  didlars  nl' 
lawful  money  held  as  reserve:  whereas  tho  so-cnlled 
"eountrydianks"  are  allnwvd  to  owe  depositors  a  hnmlred 
dtdlars  for  every  fifUH'u  iloUnrs  they  ludd  as  reserve.' 

Taking  tho  hank  (riirrency  of  the  United  States  ns  a 

>  It  ought  tn  bo  addfd  tlint  iliu  iMmiitiy  IiiiiiUh  iimk.  "ttl«  or  ii<<  uw 
of  llicir  H|H'cial  i.nvileK*).  Tluiy  kuep,  on  thu  uvinigu,  ubuul  a.s  h,  rong 
n'HervfB  a»  tiiv  city  baiika. 


..M 


\m 


JUififiil  Kmnmnfi. 


\\\\i)V\  ImiI  untitling  |>iiviiti-  itint  Nititi<  lniiikM,  wt*  iliul  tlml 

t«t  th«)  iiiiitilKt  or  ttif  )itir  INTlMtlif  tirNt  )far  in  whlrli 

our  |iri'H«>iit  HyHUtiii  «<xii«lf<l  on  a  coin  iHiHiM)  tlitt  |iro|Mir- 

tiiMi  of  Imnk  I'ltrii'iicy  to  cuiii  win  n  liltlti  1«<mh  tliitii  t  i^lit 

lUillai-N  fur  uiii'.     Ill  1SH7  tlif  ratio  luiti  falli'ii,  hy  n-amiii 

of  ilif  iiiiriuiMtt  <A  coin  ill  tlic  Treasury  imkI  tla>  national 

tiaiikM,  lu  iilHtiit  Hix  (lollaiM  fur  niif.     Hut  tlu'  a^^'ll'^ata 

hank  I'lirri'iicy  of  lliu  I'oitiitry  im  rapidly  incrt'aNitiK.  itinl 

HiH'iiiM  likitly  to  iviu'li,  iH'ftiri'  ninny  ycHrs,  «  iiroportion 

to  the  coin  nttturvu  not  niiU'li  U-low  that  of  1H70.'     Tim 

lioti)  cirt'iilalion,  it  [^  true,  ih  iltrrniMiM^' ;  hy  n>uMon  of 

tlm  liif^li  jiiictj  nf  I'liitcd  Stati'M  IioiuIh,  wliioli  linvt?  to  Im 

jilai'cd  ill  llii)  Tri'a.Miiry  aH  a  Mt'ciuily  for  iiotcM  iMwiiiul,  tliu 

baiikH   liiiil  till*   i.MHU't  of   iiotuM   IcK^   piotitaMi!   than   tliti 

i  Tlic  (iKun-H  (or  tlic  yearn  1H71)  ttiul  IHXT  win;  on  fuliuwM,— not 
liu'lniUriK  iiuU-n  In  tlii<  Tri'UMury  iiiitl  In  thr  liuiik*: 

I  wo 
Ni't  (liilil  In  llm  Trritnury.  f  lavxn.iNNi    I'.  H.  Nnli'ii  In  Immli  of  |iiil>lli'.  |-.w.«i)iimhki 

N«|,  tlankn.      •i\,»*),im)    Nu».  Ilk. am.iKKi.dtiii 

..I |)t>|HwlUur  Nut.  Hunk*    .    .        «ifXI,UU),IMIO 

TiirAi |lfl«,«on,ow»  ■ 

TciTAL |i,'iin,nnn,Min 

1WI7 

Nfl  (Idtil  In  lli«  Triiumry.  •l«»,(ion.(Kifl    r.  f*.  N<.t.i f2WM»V).o()0 

"       "     Nat.  Ihink*  .    .    IW.iKin.lion    Hllv.r  ('.•rtlllriiliii     ....  V*\n*\im 

— — —    Nut.  flunk  Nott'ii ■<!Mfm,m\ 

T<iT.\L, 1010,0110,1100    Ih>|H«IU  ii(  Nut.  Ilunka     .    .  1,3.'>4),Umi,un) 

Total |ti,oiM),(iiio,ooo 

I  liu'ladc  th>>  Hllvcr  ct'rtiflcnt<>H  niiiiiim  tlu*  circuliilhiK  imtcH,  but  do 
not  liicludf  III  the  I'dln  n-wrvo  tin*  two  Imiidn-d  niid  twenty  iiilllion 
«if  Kilver  dolliirn  (i9'ijn,(KHl,(»n(i)  in  the  Trtiimiry.  The  renBon  In  thiil 
tliiiM  far  the  Hiiver  dollurK  li  <  ve  Htrlctly  nolliiiiK  to  du  with  iLu  valuu  uf 
till)  cerliUcuteH.    8eu  Cliii|>ier  XVI.,  $  U;  idRu  note  In  A|>|H)iidlx. 


I,  Wl*  illul  tllill 

^«>ar  ill  wlili'li 
4)  tlh<  |irii|tor- 
<NN  tltiui  *\\ih\ 
It'll,  l>y  h'liNiiii 
I  the  iiatiniiiil 
till'  ii^{^'rt'Kiili> 
i('ifiiNtti){,  mill 

a  pro|i<irtiiiii 
f  1M79.'     Tim 

Ity  It'iixnii  of 
li  iinvc  to  lit! 

I'M    iHWlU'd,   tliu 

\tli!  tliaii   till) 

Ul    fuliuWM,  — Itlll 


inilitlc.  I'Jttn.fNIlMNNl 
••      'jin.iKHMNiii 

,     .        flni.lWU.IMN) 


.   .  ii,'jin,n(i<),niin 

,     ,  irAIKXI.UK) 

,    ,   .     'iM.mm.MNi 

.     .     I.SMI.IMIII.UN) 

,     .  |'J,MN),(IIIII,III)D 
llg   llOtCH,  but   ill) 

il  twi'iity  inllliiiii 
ic  ri'aHoii  Ih  tliiil 
wiUi  iLu  valuu  ui 
A|i|ic'iiilix, 


finnk  CHmneg, 


160 


KmutiiiK  of  tho  rtHlit  t<»  «all  nii  tlMiii  for  iiiMimy  liy  rliiM-k. 
A('i;onlinu)y,  dutHmitM  iDcri'iiscil  frmii  iiInmiI  n\%  IhiiiiIu'iI 
iiiiUii>iMlnUflrH(#fiOO.O()0,(ioO)  at  tin'  l«'«iiiiiiiiK  i-f  lH7t». 
to  iiiii!  tliiMimintl  lliri'o  hiiiiilii'il  ami  lil'tv  millinii  itHllniH 
(S!«l,;irtO,000,()00)  at  thf  i-ml  iif  ISS7.  Ill  till'  •'iiiiM'  jN'riiMl 
tlic  imti'  UMU'n  iif  tim  iiiitiniial  IhiiiIxh  tlccicasi'il  I'rnni  alinut 
tlin-f  liiimlivtl  iiiillii)!!  tlolliirH  (*tOU,(M)(i,()00)  t..  aliout  two 
Immlri'il  ami  llfty  niilli-'u  .l..llarN  (rJ.'0  00(»,0((()).' 

Thor«  iiro  inatiy  haiikiiiK  institutions  in  tlm  riiitftl 
Stati'M  which  havo  not  tonm  into  tla*  national  HyMtt'iii, 
Tim  "  Fiiiancf  Ufport"  for  ISH?  Kivt'H  MtatistirH  i.>r  'J,172 
prlvatt'  hanks,  loan  ami  trust  coniiiaiiif.s,  ami  Statf  hankH 
(ithiT  than  miviiiKs'  liaiiks.  Tlmsu  iiiNtitutioUH  niu  prw- 
VfiiU'il  from  issuing  notuH  hy  tlm  ht-avy  tux  (tfii  jht  runt, 
a  year)  inipoHod  on  »inh  yotiis  hy  Ait  of  (JoiiKrcHS ;  hut 
thoy  can  Icml  tlm  right  to  tlt'inaml  money  hy  chcrk  with 
ontiri!  fri'oihnn.  Their  dtiposits  payahlc  on  ilcinand  nro 
rutnrm'il  at  scviii  humlictl  ami  i'i;?hty  million  tlollars 
(!i|l7H0,O0(),O00).  Ho  far  as  regards  tlm  volumo  of  our  cur- 
roncy,  this  nmoiint  must  ho  added  to  tlm  oim  thotiMaiid 
three  hundred  and  fifty  niilli.m  dollars  (*l,3r.0,00i\()00) 
similarly  jmyaldti  l»y  the  national  hanks,  making  tho 
total  deposit  f.jrroney  of  the  ciapitry  for  the  year  1HH7, 
two  thousand  one  hundred  and  thirty  millions  of  dollars 
($2,130,000,000).'^ 

>  It  may  be  wi'll  to  obKiTVn  tliat  tho  Hilver  cerlllioali's  IhsuccI  by  tlio 
Truiwury  have  iiiori'  tliua  niii)i)llod  tliu  jilucc,  in  tlio  ordinary  circula- 
tion, of  till)  retired  l)aiik-niit('K. 

'■*  The  returns  fri»ni  prlvatt;  biinkH  aro  very  Inooniplote.  Thuru  arc 
in  fact  alM)ut  four  tliuusand  uf  thein  in  thu  I'nitid  Mtatct). 


160 


fulitical  Ecoriorny. 


31. , 


If  wo  add  to  this  sum  the  circulating  notes  of  nil 
kinds  in  the  hands  of  the  public,  we  find  the  total  bank 
currency  of  the  United  States  to  Ixj  about  two  thousand 
seven  hundred  an<l  fifty  millions  of  dollars  (S2,750,- 
000,000).  This  rests  on  a  basis  of  gold  in  the  Treasury 
nnd  in  the  banks  amounting  to  about  four  hundred 
millions  of  dollars  ($400,000,000),  or  somewhat  more 
than  one  dollar  of  gold  for  seven  of  bank  currency. 

In  other  words,  if  all  persons  having  a  right  to  de- 
mand true  money  of  the  banks  and  the  Treasury  should 
suddenly  and  simultaneously  demand  payment,  not  much 
more  than  one  dollar  in  seven  could  be  paid  in  gold ;  yet 
every  dollar  of  the  whole  mass  is  doing  the  work  of  a 
gold  dollar  and  (with  the  exception  of  the  silver  certifi- 
cates) is  convertible  into  gold,  at  any  time,  at  the  option 
of  the  holder. 

6.  Effect  of  Bank  Correnoy  on  Prices. — Though  prices 
in  the  United  States  are  obviously  six  or  seven  times 
higher  than,  without  the  aid  of  banking,  our  present 
stock  of  gold  would  make  them,  yet  it  would  be  a  mis- 
take to  suppose  that  our  prices  are  six  or  seven  times 
higher  than  they  would  be  if  bank  currency  had  never 
been  invented.  The  stock  of  coin  itself  would  have  been 
greater  than  it  is,  if  its  value  had  not  been  kept  down  by 
the  introduction  of  bank  currency.  How  much  greater 
we  cannot  tell,  because  we  do  not  know  how  great  the 
difficulty  would  have  been  of  adding  a  given  quantity 
to  the  annual  product ;  nor  do  we  know  how  much  the 
higher  value  would  have  checked  the   consumption  of 


ail  I 


notes  of  nil 
lio  total  bank 
two  thousand 
lars  (»2,750,- 
tho  Treasury 
our  hundred 
uewhat   more 

currency. 
I  right  to  de- 
uasury  should 
3nt,  not  much 
I  in  gold ;  yet 
he  work  of  a 

silver  certiti- 
at  the  option 

rhough  prices 
r  seven  times 
,  our  present 
uld  be  a  mis- 
:  seven  times 
cy  had  never 
lid  have  been 
kept  down  by 
much  greater 
low  great  the 
iven  quantity 
ow  much  the 
nsumption  of 


Bank  Currency. 


161 


the  precious  metals  in  the  arts.  IJiit  it  is  certain  that 
much  more  would  have  been  produced  year  by  year,  and 
that  a  smaller  amount  would  have  been  used  in  making 
watches,  jewelry,  etc. 

Of  course,  if  the  whole  world  had  changed  suddenly 
from  the  use  of  coin  in  all  payments  to  a  system  of  bank 
currency  such,  as  wo  now  have  in  tlie  United  States,  the 
immediate  effect  on  prices  would  have  been  to  multijily 
them  by  si.K  or  seven.  But  the  introduction  of  banking 
has  been  gradual, — it  is  still  but  slightly  developed  in 
many  parts  of  the  world.^  Moreover  the  period  of  its 
introduction  has  been  one  of  enormous  uicreasc  in  the 
demand  for  money,  owing  to  the  great  increase  in 
the  production  and  exchange  of  commodities. 

Coming  at  such  a  time,  and  expanding  gradually,  bank 
currency  has  had  for  its  chief  effect  the  prevention  of 
a  great  fall  in  prices.  The  world's  stock  of  coin  could 
not  have  been  increased  as  rapidly  as  the  goods  to  be 
exchanged  have  been  increased  in  the  past  hundred 
years.  Even  with  the  great  increase  in  the  production 
of  the  precious  metals  since  1848,  and  the  steady  expan- 
sion of  banking,  the  general  level  of  prices  is  not  much 

'  Deposit-banking  can  hardly  be  said  to  exist  outside  of  tlie  English- 
speaking  countriet;.  Circulating  notes  are  used  extensively  in  most 
countries ;  but  where  circulating  notes  are  preferred  to  deposits,  many 
are  likely  to  prefer  coin  to  the  notcfi.  In  France,  for  example,  the 
whole  volume  of  bank  currency  is  not  supposed  to  be  equal  to  the 
amount  of  cin  In  fhe  country.  Obviously,  the  chief  effect  of  a  dispro- 
portional  expansion  of  bank  currency  in  any  one  country  must  be 
to  send  a  part  of  its  coin  away  to  countries  where  banking  is  less 
developed. 


J 


U5: 


Pblitiml  Ecoimm'j. 


% 


I 


X 


I 


higher  now  tlinn  it  was  a  liiimlrod  yt^ars  ago.  Had  it  not 
heen  for  the  growth  of  hank  currency  prices  must  have 
fallen  very  much. 

The  most  important  affect  of  bank  currency  in  the 
long  run  is  the  saving  of  labor  it  makes  in  providing 
the  medium  for  exchanging  commodities.  It  is  essentially 
a  labor-saving  contrivance.  By  means  of  it  the  labor  of 
one  man  is  made  to  yield  as  nmch  circulating  medium 
as  the  labor  of  six  or  eight  men  without  it.  Thousands 
of  men  are  thus  released  from  the  work  of  producing 
mere  counters  for  making  exchanges,  and  are  employed, 
instead,  ui  adding  to  the  general  stock  of  enjoyable  com- 
modities. 

The  value  of  money,  with  as  without  banking,  tends 
in  the  long  run  to  conform  to  the  cost  of  producing 
the  jnoney-metal.  The  difference  is  that,  with  banking, 
the  real  demand  for  the  metal  at  its  natural  value, 
is  made  much  less  than  it  would  be  without  banking, 
and  thus  the  production  of  it  is  confined  to  the  most 
fertile  sources  of  supply.  Its  value,  therefore,  corre- 
sponds to  the  cost  of  producing  it  where  production  is 
comparatively  easy.  If  the  whole  demand  for  money 
had  to  be  met  with  actual  coin,  less  productive  sources 
of  gold  would  have  to  be  resorted  to,  and  the  value  of  it 
would  be  permanently  higher  than  it  is. 

7.  The  Volume  of  Bank  Currency  Variable.  —  The  use 
of  bank  currency  introduces  an  element  of  unsteadiness 
into  the  circulating  medium.  The  volume  of  it  depends 
very  much  on  the  mere  will  of  the  bankers.    There  is 


Uank  Currcnry. 


16;'. 


[o.  Had  it  not 
ces  must  have 

irrency  in  the 
8  ill  providing 
[t  is  essentially 
it  the  labor  of 
lating  nicdinrn 
it.  Tliousands 
:  of  producing 
are  employed, 
3njoyablo  corn- 
banking,  tends 
.  of  producing 
with  banking, 
natural  value, 
thout  banking, 
1(1  to  the  most 
lerefore,  corre- 
!  production  is 
iud  for  money 
luctive  sources 
the  value  of  it 

ble. — The  use 

>f  unsteadiness 
J  of  it  depends 
cers.    There  is 


a  constant  temptation  to  expand  the  issue  of  it,  because 
every  addition  brings  additional  gain  to  the  banks.  A 
currency  consisting  wholly  of  coin  could  not  be  thus 
increased  at  will. 

In  times  of  liusiness  prosperity  there  is  a  strong  de- 
mand for  loans,  and  when  business  men  are  succeeding 
well,  it  seems  safe  to  lend  to  tliem  freely.  The  banks  at 
such  times  exitand  greatly  the  deposit  portion  of  the  cur- 
rency,—  the  loans  being  given  in  the  form  of  credits  on 
the  bank  books,  just  as  if  the  borrowers  had  actually 
deposited  the  sums  borrowed.  These  credits  become  at 
once  part  and  parcel  of  the  bank  currency  acting  on 
prices. 

As  a  result,  we  have  periods  of  expanding  bank  cur- 
rency and  rising  prices.  Such  jjcriods  are  times  of  great 
activity  and  seeming  prosperity  in  business.  Not  only 
is  the  volume  of  currency  increased,  but  its  rajjidity  of 
circulation  is  quickened.  Tlie  result  is  a  steady  and 
often  rapid  rise  of  prices,  i.  c,  a  fall  in  the  value  of 
money.  Every  rise  of  prices  seems  to  bring  gain  to 
holders  of  commodities  and  to  furnish  a  basis  for  new 
loans  from  banks,  with  consequent  further  increase  of 
bank  currency. 

The  movement  goes  on  until  the  banks  reach  the 
utmost  limit  of  their  lending  power.  The  arrest  of  the 
expansion  is  usually  attended  by  business  failures.,  Men 
who  entered  on  speculative  enterprises,  counting  on  con- 
tinued loans  from  the  banks,  are  forced  into  bankruptcy 
when  new  loans  can  no  longer  be  obtained.    Then  begins 


164 


Jiulitical  Jiconomi/. 


a  period  of  contmclion  in  Imiik  currifiK^y.  Thu  Imiik.s  are 
always  heavy  losers  by  ousinuss  fiiilures:  when  these 
begin,  they  scrutinize  sharply  all  aj)}»li('ations  for  loans 
and  reject  those  that  are  in  the  least  doubtful.  Furtiier, 
the  changed  condition  of  affairs  causes  men  of  undoulitcd 
credit  to  have  less  desire  for  loans  than  they  had  whih; 
business  was  i)rosi)erous.  The  result  is  a  general  shrink- 
ago  of  bank  currency.  There  is  at  tlie  same  time  a  les- 
sened rapidity  of  circulation.  A  gradual  decline  of  prices 
is  the  necessary  consequence. 

These  changes  in  the  value  of  money  would  probably 
happen  to  some  extent,  even  if  bank  currency  did  nt>t 
exist.  I  think  they  are  primarily  due  to  the  fact  that 
savings  intended  for  investnjent,  whether  directly  or  by 
loan,  nre  always  in  the  form  of  money.  When  savings 
are  promptly  and  fully  invested,  the  currency,  whatever 
its  character,  is  kept  completely  and  actively  in  circu- 
lation. When  savings  accumulate,  unemjiloyed,  in  the 
hands  of  those  who  make  them,  the  supply  of  currency 
offering  for  goods  is  necessarily  diminished. 

The  circumstances  that  cause  banks  to  enlarge  or  to 
curtail  their  loans  in  bank  currency,  would  cause  them 
to  enlarge  or  to  curtail  their  loans,  if  they  had  nothing 
but  coin  to  lend.  The  use  of  bank  currency  sim]»ly  in- 
tensifies the  evil  very  much  by  giving  a  wider  scope  for 
enlargement  and  coutractiou  of  loans. 


S 


Tho  blinks  aro 
I :  when  thesi; 
ions  for  loans 
tful.  FurtliiT, 
,  of  un(lon1)lc'd 
!i(>y  had  whilt; 
;enoial  slirink- 
me  time  a  k;.s- 
jclint!  of  ^iricus 

oukl  proliably 
■reiicy  did  not 

the  fact  that 
directly  or  by 
When  savings 
!n'?y,  wiiatever 
vely  in  circu- 
iloyed,  in  the 
ly  of  cnrrency 
I 

enlarge  or  to 
d  cause  them 
f  hajil  nothiiig 
icy  sini])ly  in- 
ider  scope  for 


CFIAPTKR    XVI. 

QUESTIONS    BETWEEN    OOLD    AND    SILVER. 

1.  Contrast  between  Gold  and  Silver.  —  In  the  foregoing 
chapters  silver  and  gcjld  have  been  spoken  of  together, 
as  if  both  could  be  used  as  money,  side  by  side,  on  a 
footing  of  perfect  equality.  We  must  now  consider  some 
ditticulties  that  are  met  in  tho  attempt  to  uso  them  in 
that  manner. 

First,  however,  we  must  note  an  important  difference 
between  the  two  metals.  Weight  for  weight,  gold  is  at 
present  (181'7)  worth  more  than  thirty  times  as  much 
as  silver.  If  we  compare  them  by  bulk,  the  contrast  ia 
still  greater, — a  cubic  inch  of  gold  l)eing  worth  fifty-six 
times  as  much  as  a  cubic  inch  of  silver.' 

2.  Superiority  of  Silver  for  Small  Money.  —  This  wide 
difference  in  value  gives  each  metal  an  obvious  advan- 
tage over  the  other  for  one  of  the  uses  of  money.  As 
material  for  coins  of  small  value,  silver  is  much  more 
suitable  than  gold.  Dimes  made  of  gold  would  be  almost 
invisible.  Even  the  one-dollar  gold  piece,  formerly  coined 
at  our  mints,  was  found  to  be  inconveniently  small,  aud 
the  coinage  of  it  was  give     up.    Coins  so  diminutive  are 

1  Tlie  specific  gravity  of  silver  is  10.47 ;  that  of  gold  is  19.34. 

105 


J. 


166 


Ihlitical  Ecowmy, 


(lilliculb  to  liiuullo  luul  iiru  cuiistantly  in  ilaiiger  of  gt^ttiiig 
lost. 

For  small  inonoy,  then,  silvor  lins  everything  to  recom- 
nuind  it  ovor  gold.  Hut  at  tins  ot'.ior  ciul  of  tlit?  acalf,  it 
nuiHt  lu!  aihnittod  that  .silver  i.4  .suhjoct  to  a  very  .serion.s 
drawhack.  Even  so  niuall  a  H.:ni  of  it  as  ten  (h)llar.H 
niake.s  an  avvkwanl  itackage  for  currying  in  one's  [lockeL. 
A  niilli(»n  dollars'  worth  of  silver,  at  its  pre-sent  value, 
weigiis  nearly  sixty  tons. 

3.  Superiority  of  Gold  for  Large  Transaotions.  —  For 
large  tranaaetions,  gold  is  vastly  more  convenient  than 
silver.  The  lahor  of  transi-orting  a  given  sum  in  g(dd 
is  less  than  one-twenti'^th  i»art  as  groat  as  in  the  case 
of  silver.  Tlie  space  required  for  holding  it  is  only  one- 
fortieth  part  as  great.  Any  one  who  has  had  exi>cr- 
ience  in  guanling  valuabh;  articles,  knows  how  much 
the  difhcnlty  increases  with  increase  of  hulk.  It  is 
many  times  harder  to  make  a  large  "strong  box"  than 
a  small  one. 

Now  the  financial  affairs  of  a  great  commercial  nation 
require  the  constant  care  and  handling  of  large  sums  in 
coin.  In  the  movement  of  such  amounts  as  are  daily 
passing  about  in  the  .settlemetit  of  accounts  between 
banks,  and  in  the  operations  of  the  national  Treasury, 
the  difference  in  favor  of  gold  amounts  in  the  course 
of  a  year  to  a  very  considerable  sum. 

Nor  is  this  a  mattr  affecting  the  bankers  alone,  or 
even  chiefly.  The  Siiviug  by  the  use  of  gold  rather 
than  silver  is  a  gain  to  the  whole  community.     Like 


-iik.- 


■mr^r- 


Quealioui  between  Gold  and  Silver. 


167 


Igor  of  getting 

ling  t(i  roconi- 
iif  till!  scale,  it 
a  very  si'iiniis 
18  ton  iloUiiis 
ono's  i»(>ckot. 
[troHcnt  valuo, 

actions.  —  For 

iviMiiont  than 
sum  ill  gdltl 
a  in  the  cnso 
it  is  only  one- 
8  had  oxj>cr- 
H  how  much 
bulk.  It  is 
ng  box"  than 

nercial  nation 
large  sums  in 
I  as  are  daily 
unts  between 
nal  Treasury, 
in  the  courso 

kers  alone,  or 
f  gold  ratlier 
nunity.     Like 


KfW" 


1 


every  other  labor-saving  contrivanco,  it  lightens  the 
W4)rk  of  production  and  exchange  by  supplying  a  more 
convenient,  instead  ct  n  less  convenient  medium.  It 
giv».-s  proi'isely  tl.o  same  advantage  as  the  u.se  of  silver, 
rather  than  copiK;r  or  tin,  gives  in  the  cas3  of  our 
Hiiinller  coinage.  The  beiieKt  accrues  to  all  who  have 
occasion  to  use  money,  that  is  to  the  whole  cominiinity. 
Whatever  makes  banking  diHicult  and  costly,  is  sure, 
in  the  long  run,  U\  increase  the  cost  to  the  community 
of  the  services  which  the  bankers  render. 

4.  The  Double  Standard. —  All  nuMi  agieo  that  both 
silver  and  gold  are  needed  fus  money,  since  each  serves 
a  purpose  for  which  the  other  is  much  less  suitalde.  JUit 
when  wo  come  to  the  (piestion  of  the  best  method  of 
obtaining  the  use  of  the  two  metals  in  coinage,  we  find 
ourselves  at  once  in  a  region  of  doubt  and  controversy. 

It  was  once  supposed  that  a  nation  wishing  to  have 
the  use  of  the  two  metals  as  money,  needed  only  to  coin 
both  of  them  freely.  But  experience  has  clearly  proved 
this  tobe  a  mistake.  Every  country  that  has  tried  it  has 
found  that  the  result  is  to  give  the  use  of  one  metal 
only. 

The  reason  is  clear.  The  adoption  of  two  sets  of  coins 
as  full  money,  is  in  fact  an  attempt  to  have  two  stand- 
ard units  for  measuring  value.  The  two  may  indeed  bo 
accurately  adjusted  at  the  start,  so  that  a  dollar  .of  the 
one  sort  shall  have  precisely  the  same  value  as  a  dollar 
of  the  other  sort, — comparing  them  simply  as  (what 
they  are  in  truth)  pieces  of  metols  produced  by  labor. 


168 


Jhlitieal  Economy. 


Hut  till)  cliUiculty  i.s  timt  cacli  Ih  i»ru(liKed  inthiiMiiidciitly 
of  tho  othur,  ttiiU  tho  coHt  of  itrmluctiou  of  tho  ono  mny 
clmngo  without  ii  corrcNitondiuf,'  clmiigo  iu  tho  cost  of 
tho  (»th»r.  Wlu'u  this  hai»|»ciiH  (luul  it  is  t:onHtiint!y 
liitpiH'iiiii^,'  in  thi!  vmv.  of  (,'ol(l  iiiid  Hilvcr)  tho  two  sots 
of  tloUurs  Itocomi!  uuetiuiil  in  natural  vahu! ;  tho  country 
nojiuiros  in  consiMjutMico  two  ditturont  stnndardH  or  nioas- 
ures  of  value.  Henco  tho  nauio  of  Douhlo  HUuulard 
applicMl  to  this  arningoinont. 

Now  to  set  up  two  did'erent  measures  of  value  would 
ho  as  ahsurd  and  inconvenient  as  to  adopt  two  yard- 
sticks of  uno(iual  lenj^th,  or  two  hushol  measures  of 
une(jual  capacity.  Tho  law,  where  tho  double  standard 
prevails,  atteujpts  to  keep  tho  two  kinds  ol  money  eciual 
in  value  by  jaoviding  that  each  kind  shall  be  lawful 
iiiOnoy  and  a  legal  tender  to  any  amount.  This  does 
indeed  cause  the  two  kin('^  t<»  have  equal  value  (t.  e., 
market  value)  so  hmg  as  both  continue  to  circulate :  but 
tho  ofToct,  in  the  end,  is  to  drive  one  of  them  out  of 
use  as  money.  It  is  the  fatal  weakness  of  tho  double 
standard  that,  while  in  theory  it  is  a  plan  for  giving  us 
tho  iiso  of  both  gold  ami  silver  as  money,  it  is  in  practice 
a  plan  that  limits  us  to  ono  of  the  two. 

5.  Double  Standard  in  the  United  States.  —  The  practi- 
cal working  of  the  double  standard  may  be  readily  seen 
by  studying  the  history  of  it  in  our  own  case.  Our  first 
national  coinage  was  made  under  an  Act  of  Congress 
passed  in  1792.  Under  this  act  gold  and  silver  wero 
coined   free   of  charge   for  all  persons   sending   in  tho 


-^Mk^ 


Qtuntiom  betwtin  OulU  atul  tSilfcr. 


160 


ll(t(!lH!ll(loittly 

tho  ono  Tuny 
1  tho  cost  of 
is  roiiHtiiiitJy 
tilt'  two  HcLs 
;  tho  country 
arils  or  nions- 
blo  HUuulard 

vnluo  woulil 
pt  two  yaril- 

iiuiaaurcs  of 
able  staiuhird 

monoy  e<iual 
nil  1)0  lawful 
L.  This  (loos 
il  value  (i.  e., 
lirculato :  but 

thorn  out  of 
jf  tho  (loublu 
for  giving  us 

is  ill  practice 

—  The  prncti- 
e  readily  seen 
ISO.  Our  first 
,  of  Congress 
i  silver  were 
ndiug  in  tho 


nocesHnry  bullion,  —  ono  pound  of  gold  boiiig  made  into 
as  many  tlollars  as  liftfiiu  pounds  of  silvor.  Coins  of 
oithor  wore  nuulo  u  "lawful  toiulor  iii  all  pnyinonts  what- 
Hoovcr." 

Tho  ratio  of  l  =  ir»  was  approximately  cornu-t  at  tin- 
date  of  tho  Act.  Hut  silver  was  at  that  time  shiwly 
declining  in  value  as  compared  with  gold,  owing  t(t 
increased  production  of  it  in  Mexico.  Hy  tho  year  1800 
one  ounce  of  gohl  was  worth  loi  ounces  of  silver. 

In  this  state  of  things  men  ceased  to  carry  gohl  to  our 
mints  to  be  coined.  They  (iven  found  a  pritlit  in  sending 
out  of  the  country  the  gold  already  coined.  Kor  (ifteen 
thousand  dollars  in  gohl  one  could  biiy  silver  ent)Ugh 
abroad  to  make  fifteen  IhouHimd  five  hundred  silver 
dollars,  thus  gaining  five  hundred  dollars  by  tho  oper- 
ation. As  a  result  tho  gold  coin  of  the  United  States 
disappeared  from  circulation,  and  the  country  was  left 
with  silver  alone. 

In  1834  an  Act  of  Congress  was  parsed  to  restore  tho 
use  of  gold.  By  this  Act  it  was  ordered  that  a  less 
(juantity  of  gold  should  be  used  iif  making  tho  gold 
coins  thereafter.  In  tho  new  arrangement  one  ounce  of 
gold  was  coined  into  as  many  dollars  as  sixteen  ounces 
of  silver.* 

»  Tlio  amount  of  pure  goUl  in  the  eagle  was  cut  down  from  2471 
grains  to  2.'J2  grains.  Tlie  (juanlity  of  pure  silver  in  tlie  silver  dollar 
was  and  is  :171J  grains.  2:J.2  :  371}  =  I  :  1«— .  Our  standard  gold  and 
silvor  contain  one  part  ailoy  for  nine  of  pure  golil  or  silver ;  tlie  weiglit 
of  tho  silver  dollar-piece  is  tlierefore  4l2i  grains  (;i71i  of  silver  and 
4U  of  alloy). 


4 
If 


170 


JUitiettl  JSeonomp. 


Jiwt  Imlom  thu  iin»«ng«  of  tho  Act  »ilvor  had  fnllou 
tit  uliout  16  =  1,  but  it  rtwo  ngnln  ntid  ivnmirieil,  in  tho 
iimrki'tH  of  tiio  wniUl,  al).>ve  our  cttinn},')?  vnhmtion. 
Tlicru  wii.H,  thi'rofori),  i.i  tho  now  mljustiiicut.  tho  same 
M'a.ioti  for  <'x|M)rtinr'  our  silver  roins  to  pa}'  for  ^iM,  n^ 
thiTf  hud  Ivjcu  iu  tljo  pruvious  adjustiiii'ut  fur  thu  ruvorse 
ojwmtion. 

Thu  COI181UIUCI1C0  was  that  all  fnll-weij^ht  Hilver  coins 
proHcntly  diHapiifarod  from  circuhitiou,  and  thoir  plucos 
Wfro  taken  by  tli«  ni'W  yold  coinagu.  Kvon  thti  small 
chnngo  di«u|ii.«'nr('d  with  the  unt,  ^'\^'(^\^i\\\^^  the  pioctm 
that  worc!  too  niiich  worn  to  \n.\  sold  as  fiilvur.  Ily  ISfiO 
wo  had  a  ooiiiagi-  consistiuj,'  almost  (txclusivtdy  of  gohl, 
with  worn  Moxiean  silver  for  change.  N«w  silver  piecus 
wore  coined  from  timo  in  time  by  the  Oovcrnment,  but 
they  disappeared  as  spee<lily  as  they  wero  issued. 

6.  Oold  Standard  with  Sabiidiary  Silver.  —  In  ordor 
to  remeily  tliis  evil,  an  A(  t  wa.s  passed  in  IfioS  which 
provich'd  that  the  snuiller  silver  pieces  to  be  coined 
tlioroaftei  liould  contain  about  seven  per  cent,  less  silver 
than  tho  formt^r  issues.'  This  device  was  ndo])t(;d  in  order 
that  t)jo  new  isautis  might  bt!  worth  les.s  as  mere  silver 
than  as  coins  of  the  Unite<l  States,  and  shoid<l  thensfore 
always  stay  in  circulation.  In  other  words,  the  amount 
of  silver  in  tho  half  dollar,  the  (juarter,  the  dime,  etc., 
was  known  and  intended  to  bo  worth  less  than  tho  sum 
tho  coin  was  to  pass  for. 

•  One  dollar  of  the  new  silver  c>mnp;o  containi!  only  .T84  prainn  of 
siaiiilanl  Hilvur,  wlicnas  tho  silver  dollariilect!  wclgliH  I12|  gralng. 


l'*B»>g^irPMMli'-.J^?wwj*jfti!^rWilM^.jM^^ 


Qutntiitnii  Mifftn  fJohl  und  Silirr. 


171 


or  had  fallvn 
iiiiiried,  in  thu 
gn  vnhmtion. 
tilt,  tilt)  same 
)■  fur  ),'ol(l,  nn 
or  thu  ruvoFM 

t  dilvor  coins 
I  thoir  i>lae(!8 
en  tliti  Ntrutll 
if(  tlio  piucuN 
ur.  IJy  Isr.O 
ivoly  of  gdld, 
'  uilver  piocus 
urnnient,  btit 
iKsueil. 

'.  —  In  order 
3853  which 
;o  be  Coined 
nt.  los«  Hilver 
ipttd  in  (trdor 
s  niLTo  silver 
ul<l  thoroforo 
I,  tlio  amount 
le  dime,  etc., 
han  tho  sum 


ly  fl^l  prainii  of 
I13|  graiiii. 


Tho  n«w  coins  w«r«  not  nmdi'  a  h'giil  tender  for  snniH 
cxcoedinj^  hvu  dollarH.  Tho  jiriviief^e  (»f  goHinj}  silver 
coin«d  into  these  pieces  wns  conferred  on  tho  Treasury 
utonu,  in  order  to  gnard  against  excessive  proiluetiun  of 
thimi. 

ThoHo  light-w«ight  silver  coins,  of  limited  legal-tender 
quality,  are  ralli.'d  a  sulisidiary  coiuiige.  The  result  of 
the  Art  of  1853  was  to  give  us,  in  practice,  the  single 
gold  standard  with  a  limited  supply  of  silver  coins  for 
Mtnall  i>aynients.'  The  arning»'niont  worked  well,  a»iii 
roniaiued  in  operation  until  tho  over-iMsue  of  inconvert- 
iide  cuireney  during  the  ('ivil  War  drove  all  sorts  of 
nietiillic  money  out  of  use.  It  is,  so  far  as  expnrionco 
goes,  the  oidv  plan  that  succeeds  in  giving  a  country 
the  use  of  both  inetaln, 

•  Since  the  KcHUinption  of  Spocio  Payments  at  tho  be- 
ginning of  1870  we  have  again  had  in  prarti.  e  tho  single 
gohl  stiuiditrtl,  with  the  subsidiary  silver  coins  proviiled 
l»y  tlie  Alt  ot  1853.  rufoii  unately,  however,  we  have 
also  had  pwuliar  enactments  rcgai'ding  the  silver  dollar 
which  threatened,  until  reponlod,  to  brirtg  us  again  into 
the  troubles  of  the  Double  Standard. 

7.  The  Silver  Act  of  1878.  —  After  the  change  of  ratio 
in  1834,  owners  of  silver  ceased  to  get  it  coined  into 
dollars.      In  tho  year  1873  the  right  of  getting  it  so 

>  It  was  still  the  riRht  r>f  any  porson  having  silver  bullion  lb  j(Ct  It 
coined  inU)  dolliirH  of  4l2i  grains  Htaiiiliinl  Hilver.  Hut  412^  grains  o( 
standard  silver  could  be  (wfri  for  more  than  a  dollar;  so  no  man  cared 
for  the  {irivilege  of  getting  it  coined  into  a  dollar. 


1 


■^ 


:i' 


.« 


172 


D>lUienl  Kcnnnmy, 


oo{ii(h1  wm  alinli»lii>t.'  Siiorily  ufUr  thii  wm  Umifl  tho 
viiliu!  of  ullvi-r  Im'hiui  to  iliicUne.  Wy  the  ye«r  lH7«i  it 
lm<l  fullt'H  MO  much  that  Wlh  «•"»»'»«  of  iiilvor  ctmUl  1hi 
liou^ht  for  iiiimt)'  f'oiitM  itt  goltt. 

Thu  |iriiimry  i-nuw  of  thii  cU-olino  wnn  tho  «li«rovory 
of  iH'W  mill  vnry  jumhictivu  iiiiiu'M  in  (!oloriulo  nixl 
N«'vii(lii.  'I'lie  cIl'tHl  of  tho  Krt'ut  iinniiMd  of  iirodiK-tioii 
thill  foUowotl  wiiH  iiitfiiMilititl  hy  thn  ci-HHatioii  of  Hilvor 
coining  liy  (Uirnuuiy,  Krancu.  rtn«l  Italy.  Tho  ntints  of 
thoiu  countrieu  had  pruviouHly  ahHorlxul  a  coriHiiUsrahlo 
liart  of  tho  curront  pnHluct.  Ily  tho  Htoj)iM»Kti  of  in<mt 
of  tho  roinu^,'!!  (UMuanil  for  nnw  Hilvor,  tho  nu-tal  in  tho 
uncoini'tl  Htato  coasod  to  havo  its  vahiu  Htoadit'tl  an  tho 
vahio  of  money  is  HtoaiUotl.  It  hocamo  jiossihlo  f(»r 
tho  valuu  of  Hilvor  bulli<m  to  fall  iinlclinitfly  liolow  tho 
valuo  of  tho  Hamo  iiuantity  «)f  silvor  in  tho  forn»  of* 
I'oin.  In  a  word,  silvor  Imllion  could  fall,  and  did  fall, 
in  valuo,  just  as  copier  or  irou  fall  whou  tho  i>roductiou 
is  incroasod. 

Tho  i»roducors  of  silver  in  this  country  wcro  naturally 
clamorous  to  roj^ain  tho  rinht  of  converting  thoir  product 
into  money.  Thoy  woro  joined  in  this  demand  l»y  nmny 
luithinking  persons  who  imagined  tho  increoso  of  silver 

'  The  Act  of  ConRroHH  autliorlzWif?  tho  colimRc  of  tho  trailo  dollar 
containml  tho  cliuisc,  "  Tho  hIIvit  colim  of  tho  Unltod  Htati'H  Hhall  Iw 
a  initio  (li)ll.ir,  a  hiilf  dollar  or  tifly  ('oiit  plioo,  a  (iiiartor  dollar,  ot«." 
Tho  old  nilver  dollar  (4121  Kraiim)  was  oinlttod  from  tho  lint.  The 
Iriulo  ilollar  watt  liiloiidcd  for  iiho  in  Iho  Orli'iiUil  trado  ;  Uh  wclRht  was 
iiiailo  420  graiiiH,  in  urdor  tu  mattiU  thu  currtsucy  already  in  use  iu  iliat 
trade 


Qiirih'oiii    >)Hiri,»    f}nU  nwi   Stlvrr, 


178 


wna  itoiin  tho 

0  yunr  lH7rt  il 
nilvor  luultl  Im( 

tlin  (liHcovory 
('olonuto  mill 
of  |iro(lii(;ti<)ii 
ntioii  of  Hitvur 
Thu  iitiiiU  of 
a  cuiiHtdiirahlu 

ippll^ll    of    IIIONt 

I!  iiu'lal  ill  thu 
itciulii'il  tlH  tlio 
10  iHWHililt)  for 
iU'ly  hi'low  tho 

1  tho  form  of* 
I,  ami  (lid  full, 
thu  pruductiuti 

wcro  ritttiiriiUy 
g  thoir  jirodiict 
Ilia  lid  by  iiiuny 
;ruuso  of  silver 

of  tho  trade  dollar 
(>(l  Stali'H  Hliall  Iw 
uartcr  dollar,  c^tc." 
■om  tho  llHt.  The 
ilo  I  ltn  wi'JRht  was 
vody  in  uae  iu  ibut 


iiictiicy  would  1)0  ft  k(kmI  thiiiK  for  tlio  whole  coimnmiily. 
The  iiKitation  Iwl  t.»  tho  imMwiKi',  in  IH?"*,  of  an  Act  of 
C»»nKrf«i«  providing  for  u  rrnowal  of  tlio  ooininff  <»f  »*ilvfi* 
dollui'M. 

The  A<'t  rcqiiirod  tho  Socrtitnry  of  tho  TriMHiirv  t<» 
liny  Hilvrr  at  thn  nuirkol  prieo,  and  ooin  not  ht«.<  than 
iw«)  inillioiiH,  nor  moro  than  four  riiillioim,  of  dolliMs' 
worth  oach  month.  Frivato  ownon*  of  hnllion  won'  i»ot 
entitled  to  huvc  it  cnhwl  nt  thoir  pIcaHiirc,  m  thoy  hud 
het'ii  provioiiM  to  1H78. 

TluH  act  was  in  foroo  until  IWHt.  In  tho  twolvo  yoan* 
of  ilH  oporation,  tliroo  huiidrod  and  Hovcniy-oight  mil- 
111  ns  of  Hilvor  dollarn  wcro  coinwl  at  our  inintH,  forty- 
■even  t'moH  oh  many  w  had  l)cen  coined  dii-iiK  tho 
whole  previous  hintoi'y  of  tho  llnitod  Staton.  Of  thin 
ennrmoiiH  mftHs  only  on.  lixth  part  oould  tx'  kept  in  oir- 
onlation  ;  tho  rcHt  lay  in  Iho  vault«  « f  tin;  Troa»iirv. 
I'urtly  in  order  to  ^ivo  thiH  Btorod  Hilvor  a  KOoniiiiKiiHo 
a»  ourrenoy,  partly  also  to  cover  tho  co»t  of  huyiiifr  it, 
cortiflcatoM  of  doiM)sit,  a  now  fonn  of  govornrnont  notcH, 
we^o  i8hHod.  At  Hr»t  these  silver  cortitloatcH  were  for 
Hums  of  ton  dollars  and  ut)wardi».  In  1887  thoy  wcro 
isHUcd  of  lower  denoininatioiiH  down  to  one  dollar.  Tlio 
vohuno  of  them  in  circulation  increased  rapidly  after 
this  chanpre,  rising  from  eighty-eight  millions  in  188V)  to 
nearly  three  hundred  millions  in  1890. 

8.  Silver  Act  of  1890.  -  [n  July,  1890,  an  Act  was 
passed  requiring  the  Treasury  to  purelia.«e  four  and  a 
hdlf  milliors  of  ounces  ot  silver  every  moath,  al)out 


*       ■■      I 


fW 


\i 


174 


Political    J'JcoHomi/. 


(loiiblo  the  quiintity  ordinarily  purchased  under  tlie  Act 
of  1>S78.  The  silver  thus  piireiiuHed  was  to  be  j)aid  for, 
n()tl)y  tlie  issue  of  funlier  silver  certificates,  but  by  achl- 
\u}i  to  tbe  issue  of  legal  tender  notes.  Tiiese  new  notes, 
like  the  okler  greenbacks,  were  made  redeemable  in  coin. 

Tiic  Act  of  1890  was  at  variance  with  every  sound 
])rincij)le  of  finance.  Tlie  note  currency  had  already 
been  inflated  beyond  the  limits  of  safety;  yec  this  Act 
provided  for  additi(^nal  issues  to  the  extent  of  over 
$50,000,000  a  year.  Even  before  this  Act  was  passed,  a 
considerable  export  of  gold  h'ul  taken  place;  after  its 
passage  the  export  movement  increased.  Presently  the 
calls  for  gold  to  be  sent  abroad  became  associated  with 
calls  of  a  difTerent  Bort,  Holders  of  notes,  distrusting  the 
ability  of  the  Treasury  to  keep  the  increasing  volume  of 
paper  at  pur  with  gold,  began  to  take  early  measures  for 
protecting  themselves  against  loss,  by  presenting  the 
notes  for  redemption.  Others,  looking  forward  to  a  pre- 
mium on  gold,  took  the  same  course  with  a  view  to 
profit. 

In  March,  1800,  the  stock  of  gold  in  the  Treasury  was 
$;i20,000,000.  By  November,  1893,  half  of  this  stock 
had  been  drawn  ont  Moreover,  nearly  half  of  what  was 
left  belonged  to  the  holders  of  outstanding  certificates  of 
deposit;  so  tliat  tlie  net  amount  owned  by  the  Treasury 
was  only  $83,000,000.  This  was  the  visible  reserve 
againyt  nearly  ten  times  that  amount  of  notes  outstand- 
ing. Fui-ther,  the  reserve  was  steadily  dwindling, 
whereas  the  volume  of  notes  was  increased  every  month 


i'!'>fHtW!W>JI»J't^*Wi.'»-»«^5»-"V-*'-K"J^y^^ 


««i^PSr':^ 


iiulor  tlie  Act 

0  be  paid  for, 
s,  but  bv  add- 
cflo  now  notes, 
mablc  ill  coin. 

1  every  sound 
had  already 
yec  this  Act 

{tent  of  over 
was  passed,  a 
ace;  after  its 
Presently  the 
ssociatod  with 
listrusting  the 
ing  vohinie  of 
'  measures  for 
iresenting  the 
ward  to  a  pre- 
th  a  view  to 

Treasury  was 
of  this  stock 
If  of  what  was 
certificates  of 
the  Treasury 
isible  reserve 
5tes  outstand- 
y  dwindling, 
1  every  month 


i 

1 


Qiif'stiom  IxiUimni    Gobi  tint/   Slliur. 


17.' 


l»v  issues  made  in  j)ayment  for  silver.     Tlie  amounts  out- 
siunding  in  1893  were  as  follows : 


Li.'pil  Teiuler  Notes,  old  issue 

"       AotoflHW) 
Silver  Certifluutus     . 

'I'olal 


ir)0,(M)0,(tO(» 

!jao,oo(»,oo() 


|820,tKK),(KM) 


In  form,  the  silver  certificates  give  the  holder  no  right 
to  demand  gold.  Buttiieir  presence  in  the  currency  has 
tlic  same  inflating  eilect  as  an  equal  amount  of  green- 
backs. When,  by  reason  of  over  issue  of  paper  cur- 
rency, a  demand  arose  for  redemption,  it  was  gold  alone 
that  was  wanted.  The  legal  tender  notes  were  used  in 
making  the  demand.  These  are  "  redeemable  in  coin," 
and  technically  silver  dollars  are  coin.  But  the  faith  of 
the  nation  has  been  rei)eatedly  pledged  to  keep  the  sil- 
ver money  at  par  with  gold.  There  is  only  one  way  of 
fulfilling  this  pledge;  and  that  ic  by  giving  tho.se  who 
present  notes  f(jr  redemption  in  coin,  the  right  to  ehoo.se 
gold  or  silver  coin  at  will.  If  the  Treasury  should  dis- 
criminate against  silver  by  forcing  it  on  the  public  cred- 
itors, the  equivalence  of  our  gold  and  silver  coins  would 
be  at  an  end.     Gold  would  go  to  a  premium. 

9.  Silver  Panic  of  1893.  —  It  was  obvious  that  the  Act 
of  1890  was  bringing  the  currency  of  the  country  to  a 
.silver  standard.  The  situation  was  the  more  disquieting 
because,  in  spite  of  the  large  purchases,  silver  had  de- 
clined greatly  in  value,  and  was  still  declining.  In  the 
face  of  this  decline  of  value,  the  production  of  it  had 


r,rTjTr.a>rffi)jr, . 


17t] 


Political    Kcnnoniy. 


i^t) 


!■,?! 


grciitly  iticreuHod ;  m  that  thore  aecmcd  to  bo  no  iiHHign- 
uble  limit  to  tlie  threatened  depreciation  of  oiir  money 
standard. 

In  the  Huminor  of  1893  the  general  anxiety  aw  to  the 
future  of  the  eurrency  brought  on  a  severe  panic  and 
wide-spread  business  distress.  A  special  session  of  Con- 
gress was  called  to  consider  the  situation.  The  result 
was  the  repeal  of  the  Silver  Act  of  1800. 

Unfortunately  the  repeal  came  too  late.  The  drain  of 
gold  went  on.  Various  national  banks  aided  the  Trcas- 
"•■y  ^y  giving  it  gold  in  exchange  for  legal  tender  notes; 
but  the  trouble  was  on  too  great  a  scale  to  be  remedied 
in  that  way.  At  the  beginning  of  1894  the  government 
had  to  sell  bonds  for  gold  in  order  to  replenish  the 
reserve;  and  the  operation  had  to  be  repeated  several 
times  later.  Altogether  nearly  $800,000,000  in  gold  had 
to  be  raised  by  sale  of  bonds  before  the  crisis  was  passed. 
No  other  course  was  possible  without  national  dishonor. 

In  the  troubles  of  1893  and  the  following  year.s, 
the  unwisdom  of  our  silver  legislation  was  strikingly 
exposed.  Tiie  Treasury  had  accumulated  about  sixtcfu 
thousand  tons  of  silver  and  in  doing  so  had  involved 
the  industry  of  the  country  In  a  ruinous  collapse.  In 
the  resulting  financial  stress,  the  stored  silver  was  sim- 
ply useless.  Nobody  wished  to  take  it  in  payment  of 
any  claim ;  nor  did  any  "  friend  of  silver  "  come  forward, 
offering  the  Treasury  gold  in  exchange  for  silver  dollars. 
As  before  and  since,  the  piled  up  silver  was  only  a  bur- 
den ;  so  far  as  the  purposes  of  a  reserve  are  concerned, 


i.>a.ij.,»M^'tdK-— ji»;«iiM(»««^a<aaM!i^iiiii>iii»i  III      imi>»^ 


.JS*- 


)  bo  no  nHHigii- 
of  our  money 

xicty  as  to  tlic 
/ere  panic  and 
session  of  Con- 
n.     Tlio  result 

The  drain  of 
idcd  the  Trcas- 
1  tender  notes ; 
to  bo  remedied 
lie  government 
replenish  the 
![)catcd  several 
lOO  in  gold  had 
sis  was  passed. 
Dnal  dishonor, 
llowing  years, 
was  strikingly 
about  sixtcfu 
had  involved 
i  collapse.  In 
ilver  was  sim- 
in  payment  of 
come  forward, 
•  silver  dollars, 
'as  only  a  bur- 
are  concerned, 


wqT'iii— »i '  -  5r<?nr 


Qiii',sfu)ii.i  hrtiiwn   Gold  and  Siloir. 


177 


it  might  as  well  have  boon  still  lying  in  the  depths  of 
tlio  earth.  As  each  "dollar"  of  it  is  now  worth  only 
about  fifty  cents,  there  is  no  probability  that  it  will 
ever  be  available  for  use  as  currency  even  in  redeeming 
the  silver  cortiflcatos.  Nor  could  it  now  be  sold  fcjr 
much  more  than  half  of  what  it  cost.  It  will  probably 
lie  in  the  Treasury  for  many  a  year  to  come,  a  stttnding 
memorial  of  legislative  folly. 

The  experience  of  the  jiast  few  j^ears  has  boon  costly  ; 
it  is  to  be  hoped  that  the  ])0()plo  of  the  United  States 
will  remember  the  lesson.  It  had  already  been  shown 
many  times  over,  that  the  so-called  "double  standard" 
is  impossible  in  practice;  that  while  every  nation  may 
choose  freely  betwcoi  gold  and  silver,  it  cannot  have 
both  as  full  monetary  standards.  We  have  simply  given 
the  world  one  more  illustration,  on  a  colossal  scale,  of 
this  elementary  truth. 

In  spite  of  errors  and  threats  of  lapse,  we  still  have  the 
gold  dollar  as  our  monetary  unit.  But  it  cannot  be  said 
that  our  currency  is  in  a  safe  or  satisfactory  condition. 
Some  features  of  our  laws  about  money  are  at  variance 
with  reason  and  experience;  unless  promptly  reformed, 
they  are  likely  to  hinder  seriously  the  commercial  welfare 
of  the  country.  For  some  suggestions  on  the  subject,  see 
Appendix. 

10.  International  Bimetallism.  —  A  movement  has  re- 
cently been  set  on  foot  aiming  to  bring  the  chief  com- 
mercial countries  into  a  general  agreement  regarding  the 
use  of  gold  and  silver  as  money.     The  advocates  of  this 


,1 

■I 


J> 


178 


Politicnl  Econoviy. 


plan  contotul  that,  if  the  chief  nations  should  agroe  to 
coin  both  metals  freely,  all  using  the  same  mint  ratio 
of  values,  both  metals  would  remain  permanently  in 
ciiculation  in  each  country. 

They  argue  that  the  failure  of  the  Double  Standard 
hitherto  has  been  due  to  the  want  of  uniformity  in  the 
treatment  of  the  two  metals  iti  different  countries.  They 
point,  for  example,  to  the  fact  that  when  the  United 
States,  und  >r  the  Act  of  1792,  found  it  impossible  to 
keep  gold  in  use  as  money,  our  coinage  laws  placed  the 
ratio  at  1:15,  whereas  France  used  the  ratio  l:15i.  In 
that  situation  the  gold,  they  say,  went  to  France  simply 
because  that  country  set  its  coinage  value  higher  in 
terms  of  silver  than  the  United  States  did. 

The  bimetallist  theory,  briefly  stated,  is  that  if  the 
great  commercial  nations  should  agree  on  a  common  ratio 
for  gold  and  silver;  and  should  all  adopt  the  double  stand- 
ard on  that  basis,  the  two  metals  would  remain  perma- 
nently in  circulation  everywhere,  with  the  relative  value 
agreed  upon.  There  can  be  no  doubt  that  such  an  ar- 
rangement would  prevent  wholesale  interchanges  of  gold 
and  silver  between  countries.  But  it  does  not  follow  that 
it  is  the  only,  or  even  the  best,  solution  of  the  coinage 
question. 

The  general  adoption  of  the  single  gold  standard,  with 
subsidiary  silver  coins,  would  equally  cut  off  the  motive 
for  mere  interchange  of  coins  between  countries. 

11.  Wet'kness  of  the  Bimetallic  Theory.  — The  bimetal- 
list  conteiition  that  two  metals  with  full  legal  tender 


*i>Ai 


Qurntinm  between  Gold  and  Si/tr.r. 


170 


Ijould  agree  to 
imo  mint  ratio 
)ennaiiently  in 

onhlo  Standard 
iforuiity  in  tlio 
mntries.     They 
len  the  United 
J  impossible  to 
aws  placed  the 
atio  l:15i.     In 
France  simply 
alue  higher   in 
lid. 
is  that  if  the 
a  common  ratio 
lie  double  stand- 
remain  pernia- 
le  relative  value 
liat  such  an  ar- 
changes  of  gold 
I  not  follow  that 
of  the  coinage 

i  standard,  with 

b  off  the  motive 

countries. 

.  —  The  bimetal- 

uU  legal  tender 


(quality  arc  betU^r  than  one,  or  are  in  the  least  neces- 
sary, has  not  been  successfully  miiintained.  Two  vari- 
able standards  expose  us  to  tvu  sets  of  variations  in 
the  value  of  money,  instead  of  one.  The  argument  tluit 
there  is  not  enongli  gold  to  sullice  for  all  countries, 
ignores  the  fact  tluit  the  modern  way  of  using  nictfillic 
money,  makes  a  dollar  go  as  far  as  seven  or  eight  dollars 
went  two  Iiundred  years  ago.  The  age  in  which  metallic 
money  is  passing  out  of  use  as  acti^'j  currency,  and  into 
use  rs  a  mere  reserve  for  the  active  currency,  is  a  time 
when  gold  may  safely  be  adoi)ted  as  the  single  standard 
for  largo  payments.  IJank  currency  based  on  gold  may 
fur  exceed  the  total  sui)[.ly  of  both  gold  and  silver. 

The  proposition  that  the  comparative  value  of  gold 
and  silver  may  be  permanently  controlled  by  inter- 
national  agreement,  is  one  that  can  hardly  be  admits  ; 
without  better  evidence  of  its  soundness  than  has  yet 
been  supplied.  No  man  would  maintain  the  same  doc- 
trine with  reference  to  any  other  two  products  of  labor, 
even  in  cases  where  the  one  is  largely  a  substitute  for 
the  other:  e.g.,  beef  and  mutton,  corn  meal  and  rye  meal, 
tin  and  zinc.  It  is  the  common  mark  of  all  foolish 
schemes  for  "  improving  "  the  world's  currency,  that  they 
set  out  by  falsely  assuming  a  fundamental  difference 
between  money  and  all  other  products  of  human  lab'>r, 
'  iiY  scheme  is  sure  to  fail  in  the  long  run  if  it  imder- 
tukes  to  put  the  material  of  our  money  uvuer  other  con- 
trol than  that  to  which  the  value  of  all  other  products 
of  labor  are  subject,  namely,  the  cost  of  its  production. 


I 


■I 


I 


1.1 


it  ♦  • 


i;: 


ISO 


Pulitiml  Kcommi/. 


Tl»5  l.imoUiUic  Uidnry  ImldH  tliat  th<!  vnhw  "f  «'»M  "I'ly 
Itti  iiiiitU)  to  follow  tho  cost  of  silver,  iiiitl  tlin  viilui!  of 
Hilvfjr  the  font  <»f  gold,  Hiiuply  by  the  force  of  laws  and 
trottti('H.* 

If  the  goveriinu.Mits  of  th(!  lending'  roiintrias  should 
iitteiupt  to  lix  the  coinparative  value  of  thi  and  '/aw  l)y 
international  agreciinent  and  foret;  of  law,  we  ruudily  see 
that  this  would  not  he  enough  to  ensure  sueecss.  The 
u'Teeing  yovernnients  would  have  to  undertake  the  duty 
of  k(!epiny  the  market  supplied  with  eaeh  metal  at  that 
value,  or  nm  the  risk  of  having  the  supply  of  one  or  the 
other  fall  short  of  the  demand,  or  even  fail  entirely. 

It  has  not  been  shown  that  intijrnational  bimetallism 
could  be  counted  on  to  give  us  a  ilesirable  proportion  of 
each  metal,  or  indeed  both  meUls  in  any  pro[iortion.    The 

»  TJie  advocates  of  the  theory  lay  nmeh  stress  on  what  they  assume 
to  be  a  powerful  chock  against  the  wiilidrawiil  of  either  metal  from 
use  iiH  money,  owins;  to  a  fall  in  the  value  of  the  other.  The  with- 
drawal of  gold  from  use  as  money  would  cause  an  increased  supply 
and  a  decline  of  Its  value,  as  a  material  Tor  use  In  the  arts :  on  the 
other  hand,  the  increased  demand  for  silver  as  money  to  take  the 
place  of  the  gold  withdrawn,  would  caase  a  rise  of  iu  value.  Thus, 
they  hold,  the  two  metals  would  tend  to  keep  the  relative  values  im- 
posed on  them  by  the  international  league.  All  this  may  be  admitted 
so  far  as  temporary  changes  are  concerned  ;  but  it  docs  not  touch  the 
fundamental  question  of  the  permanent  supply  of  both  meUils,  espe- 
cially that  proportional  supply  of  each  which  may  best  nerve  the 
public  convenience. 

If,  for  example,  international  bimetallism  had  been  adopted  when 
the  ratio  was  1  =  10,  does  any  pt^rson  auppose  that  gold  would  now  be 
in  use  as  uioney  at  that  ratio  unless  the  government.s  of  the  various 
countries  should  have  kept  up  the  supply  of  it  at  a  loss  to  themselves* 


'«Jk., 


nr 


Questions  between  (/old  and  HUver, 


ISl 


!  iif  ^^^\^\  may 

tll(!    viiluii   of 

I!  of  luwH  uiid 

intri(!s  hIiouM 
II  and  zinc  by 
wo  readily  huc 

SU0(!t'8H.       Tilt! 

•laku  tlio  duty 
metal  at  that 

'  of  one  or  the 

1  entirely. 

al  bimetallism 
proportion  of 

roportion.   The 

wliat  lliey  asHumo 
citlier  niotal  from 
other.  The  with- 
increased  supply 
I  the  arts:  on  the 
loney  to  take  the 
f  it«  value.  Thua, 
relative  values  iiii- 
8  may  be  aihititteil 
(Iocs  not  touch  the 
both  metals,  espe- 
ly  best  serve  the 

een  adopted  when 
gold  would  now  be 
'Uts  of  the  various 
loss  to  theuutelves'if 


(tymeiny  countrii!H  might,  in  thtt  hmg  run,  find  themHelvus 
liiiiiU'd  to  the  uho  of  one  motul,  UMle«H  their  governments 
sJKMild  nHsnme  tlie  burden  of  ke»'j»ing  u|»  the  coinage  HU[t- 
jily  of  both  at  the  agreed  ratio,  in  eane  private  producers 
of  cither  metal  wlinuld  eeaH(?  to  offer  it  for  cuitiin". 

12,  The  Nations  not  likely  to  Agree  in  reitoring  Stiver.— 
Finally,  tln-re  is  lilUc  prospect  of  any  intt-nuUional 
compact  on  the  subject  of  bimetallism.  There  have  l/eeti 
several  conferences  (tf  delegates  from  the  chief  commer- 
cial cf)untrieH,  but  no  progress  has  been  made  towards 
a  g«;neral  agreement.  (Jreat  IJritain  and  (icrnmny  are 
unwilling  to  abandon  the  gold  standard,  and  without 
their  co-operation,  a  binuitallic  league  would  have  poor 
chances  of  even  temporary  success.' 

Meantime  all  the  great  comniercial  nations  have  closed 
lliuir  mints  to  the  further  coinage  of  silver.  The  value 
of  silver  has  now  fallen  so  far,  and  its  prodtiction  has 
increased  so  much  In  spite  of  the  fall  in  vahu;,  that  it 
would  be  an  act  of  dan,  g  rathet  than  of  statesmanship 
to  propose,  whether  with  or  witliput  an  int<jrnational 
agreement,  a  restoration  of  unrestricted  coinage  at  the 
old  European  ratio  of  1  =  15  J. 


'  If  the  nations  ever  make  general  agreements  on  the  subject  (<f 
money,  it  is  to  be  hojMid  that  tliey  miiy  adopt  a  common  unit  of  coin- 
aj,'o  as  well  as  a  common  treatment  of  gold  and  silver.  What  could 
be  more  inconvenient  or  ab.snrd  ilian  tlie  pre.sent  confu.sion  of  mone- 
tary units'  One  dollar  of  United  States  money  =  4s.  Ud,  Engll.sli 
money  =  6.18  francs  of  French  money  =  4.2  marks  of  German  money 
=  2.0  florins  of  Dutch  money,  etc. 


•  -;:^ii;,:'ij4H"¥^^?';^y!vjjft^!#.ilSMtgll*' 


1- 

f*. 

J 


CHAI'TKIl   XVII. 


i*^ 


INOONVBRTIBLB  LBOAL-TBNDBR  NOTES. 


1 . 


i\: 


^    .«! 


1.  Character  of  Inconvertible  Notes. — TIktc  in  a  n<[nn\'ul 
iiiiitiilioii  of  hank  (;urn;ii<y  kiidwii  ns  "  iiiconvcrtiltld  "  or 
"  irn'doiiiimldo  "  ixoUm.  Tlio.si)  diU'tT  from  truu  baiik-imtcs 
in  tlio  ono  point  that  makes  tlx;  lattcir  luuH'ptablu :  they 
give  the  holder  no  title  to  coin.  No  iiiovision  is  inndo 
for  pnyin}^  coin  to  such  aa  may  desire  it :  hence  the  name 
of  this  si)e(;i(5s  of  currency. 

Inconvertible  notes  are  usually  issued  by  needy  gov- 
ernments as  a  way  out  of  financial  ombarrassment.  They 
are  declared  by  hw  to  be  "  luwful  money  aud  a  legal 
tender;"  that  is  to  say,  the  ofler  of  them  in  payment  of  a 
debt  is  to  be  regarded  by  the  courts  as  if  it  were  an  ofTer 
of  real  money.  Thi.%  provision  gives  them  a  forced  cir- 
culation. Though  everybody  knows  that  they  give  the 
holder  no  real  title  to  coin  or  to  anything  else  of  value, 
yet  the  fact  that  they  can  be  used  in  paying  debts  makes 
everybody  willing  to  receive  them. 

If  the  issue  of  such  notes  wore  kept  somewhat  with- 
in the  amount  the  comnumity  woiild  naturally  use  of 
redeemable  notes,  no  grtiat  harm  would  be  done.  The 
trouble  is  that  no  government  has  ever  resorted  to  the 
issue  of  inconvertible  currency  without  carrying  it  far 


■[11 

11 


I*rices  in  Dfprtciatfd  NoUa. 


183 


OTES. 

'c  is  n  R(|iiali(I 
tnvi'rtilild  "  <»r 
no  Imiik-iHitos 
njitablo :  tlioy 
ision  in  mndc 
iico  tho  nainu 

y  needy  gov- 
sineiit.  They 
'  aud  a  legal 
payment  of  a 
were  an  offer 

a  forced  cir- 
iliey  give  tho 
else  of  value, 

debts  makes 

newrhat  with- 
urally  use  of 
e  done.  The 
sorted  to  the 
irrying  it  far 


iM'yniid  tliis  limit.  Our  own  country  HulTurod  much  from 
the  uvil  Itoforu  and  during  tho  itevulution,  and  again 
during  the  Civil  War. 

2.  Effects  of  Inconvertible  Currency  on  Prices. —  In 
conHideriiig  tho  tiU'octs  of  inoonvurtihlo  curroncy,  it 
is  necoHHary  to  diHtingui.sh  two  caHCS,  or  .stagos.  When 
the  iHHUe  of  inconvertible  note.s  is  begun  in  a  country,  tho 
lirst  effect  is  Himjdy  to  increase  tho  general  currency, 
and  raise  all  pri(!»!H.  The  rise  of  prices  causes  a  change 
in  tho  external  trade  of  tho  country ;  fewer  goods  aro 
.s(!nt  abroad  aiul  more  goods  are  brought  in.  To  pay  tho 
balance  thus  accruing,  tho  coin  and  noccs  convertiltlo  into 
coin  are  drawn  on,  —  tho  inconvertible  ttot«8  being  of  no 
use  for  tJiat  purpo.so. 

Every  addition  made  to  the  inconvertible  paper  is  fol- 
lowed by  the  gradual  di.sapj)earanco  of  an  ecjual  (luantity 
of  the  sound  currency.  While  any  of  tho  latter  remains 
in  circulation,  the  value  of  the  new  notes  is  not  affected 
by  their  inconvertible  character.  The  new  issue  simply 
has  the  effect  of  raising  all  prices  and  thus  lowering  tho 
value  of  all  money.  The  fall  is  checked  by  the  continual 
lessening  of  tho  good  money. 

Hut  when  the  issue  has  been  so  increased  .that  nil  the 
sound  currency  has  been  displaced  from  the  circulation, 
a  new  stage  is  entered  upon.  Every  addition  of  irredeem- 
able notes  after  that  point  is  reached,  is  followed  by  a 
corresponding  depreciation  of  the  whole  mass,  tf  the 
([uantity  be  doubled,  prices  will  be  doubled  also, — each 
dollar  becoming  worth  only  half  of  a  real  dollar. 


I 

J. 


■ 


r'T' 


V 


11 


!t*i 


\u 


Ikditwnl  £t-oHomy. 


In  ft  country  timt  has  a  Av[.fwinU*d  (currency  of  U-ynl- 
titntlcr  |)ap«'r,  tlio  [>nvvn  of  (•uiiiiinMlitit')  nro  Hctitioiis 
ratliiir  tliuri  ri'iil  |iri<»'s.  Tlioii-,'}!  the  teriiw  of  tiii" 
lintiu'y  contiiiiin  Id  he  u«t'<l,  tlioy  have  no  it;fiin  nco  any 
moro  to  truo  ruoiioy,  but  to  thu  piucen  of  8taiii])C(l  |)apor 
nrhitrnrily  HuhHtitiitflil  for  money  by  force  of  law.  In 
order  to  discover  tlie  rcnl  price  o{  any  article  one  must 
nscortftin  the  price  of  the  ciirnMicy  itself. 

For  cxaiiiph%  in  July,  1864,  two  dollars  and  a  half 
(»f  Ignited  States  notes  (legal  Usnder)  could  ho  hought  for 
one  dollar  in  gold.  In  that  condition  of  things,  the  real 
price  of  an  article  selling  for  twenty  dollars  in  paper 
wnifi  only  eight  dollars. 

3.  Injustice  Caused  by  Exceiaive  Iiiuei.  —  Inconvertible 
curren(!y,  when  is.sued  in  excess,  becomes  the  in.strument 
of  great  injustice.  For  instainx-,  a  man  who  horroweil 
$1,000  in  this  country  in  1861,  '..'heu  dollars  were  real 
dollars,  to  bo  paid  back  in  three  years,  was  enid)led  by 
an  unjust  law  to  discharge  the  debt  in  1864  by  paying 
^400.  The  overissue  of  legal-tender  notes  has  the  eflect 
of  confiscating  a  part  of  every  outstanding  claim.  \  law 
authorizing  one  citizen  to  defraud  another  would  not  bo 
more  unjust. 

A  similar  injustice  is  inflicted  on  debtors  when  a 
depreciated  legal-tender  currency  is  restored  to  the  specie 
standard.  Debts  which  were  incurred  in  the  time  of 
depreciation  have  to  be  paid  off  in  dollars  of  higher  value 
than  those  in  which  they  were  incurred.  A  larger  quan- 
tity of  wealth  has  to  be  paid  than  the  agreement  really 
stipulated. 


<*»«i'-. 


Jivil  XfftcU  i\f  Opermue. 


IM 


oncy  of  U'({«1- 
aru  tic'titioiis 
i!rin«  of  true 
ififun  tuH!  any 
tniiiiHJil  papor 
)  of  law.     Ill 

kit)  Olio    IIIUHt 

n  and  a  half 
hi!  Iidu^'ht  for 
lilies,  ttit)  ri*ul 
llarH  ill  {miu'r 

Tnconvertiblo 
10  iiiNtruiiuMit 
vho  liorroweil 
urs  were  real 
ks  enabled  by 
64  by  paying 
has  tbo  efl'ect 
;laini.  A  law 
would  not  bo 

)tors  when  a 
to  the  specie 
the  time  of 
'  higher  value 
I  larger  qiian- 
Demeiit  really 


TliM  latter  hanlship  Ih  UMimlly  NutTenul  on  a  grtmt 
mnlti  by  the  olVeiuling  govcninit'iit  itwelf,  wlit-n  it  s«t« 
about  rotrit'viiig  it*)  alluirs  in  bonnrabln  wiiys.  In  the 
lilH!  pl«a»,  iL  muHt  ri!d»"!iii  the  ilfprwiated  h(iI''h  thtdii- 
m!l\  09  in  pT'l  money,  although  for  all  of  them  iHsued  ufttir 
depreciwliuii  began,  it  received  leHa  than  the  value  of  real 
muii§y.  Secondly,  a  time  of  overiwuo  of  notes  is  nearly 
Alwa]r>  *y  time  of  copious  borrowing  on  the  part  of  the 
govomment.  The  greater  the  depreciation  of  the  (Uir- 
rency,  the  grcat*^'.  the  borrowing  has  to  be;  for  tbo  price 
of  everything  the  government,  has  to  buy,  as  well  w-i  the 
wages  it  has  to  pay  to  its  soldiers  and  workmen,  are 
raised  by  ev(!ry  depreciation  of  the  currency. 

In  other  words,  the  dollars  it  borrows  and  spends  are 
no  real  (bdlars,  though  it  is  in  honor  bound  to  truit  them 
as  if  tli  V  were.  The  currency  whitdi  it  has  itself  iro- 
ated,  and  which  it  compel  private  citizens  to  accept  as 
money,  it  cannot  wtdl  decline  to  receive  from  those  who 
sub.scribe  to  its  h)an8.  Its  debt  becomes  swollen  in  con- 
sequence of  the  deprt  elation  of  the  currency,  far  l>eyoiul 
the  figures  it  would  have  reached  if  its  affairs  were  con- 
ducted on  the  liasis  of  coin.  Kach  dollar  of  this  iiillated 
'"•bibtedness  has  later  to  be  paid  in  real  money,  when 
the  time  for  payment  arrives.  It  has  been  estimated  that 
the  National  Debt  incurred  by  the  United  States  dur- 
ing the  Civil  War  was  greater  by  eight  hundred  and 
sixty  million  d(dlars  ($800,000,000),  than  it  wonl.l  have 
been  if  the  overissue  of  greenbucks  had  lieen  avoided.* 
1  Bowcn,  Amvricnn  PolUical  Economi/,  p.  408. 


^1 


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tStlilu'iif    Hionnnitf. 


4  No  Juitiacttlon  for  in»klag  NoU«  InoonvtrtlbU. 
Tli«  fvilH  utliMitliiiK  tht)  i>v«riMHim  of  iiiruiivurtildn  cur- 
r»«n<y  U'iun  «••  K>*''"t>  ""  ^''•"  i»t«timmiui  omUl  udvtHrtUi 
thi)  UHM  t»f  «•'  |KTilourt  ft  BubntituU!  for  inonoy.  If  n  gov- 
i-riimt'iit  winlum  to  inHiii!  tirniliitiiiK  uoU«n,  tlicni  w  no 
Hiiuinl  iviifioii  why  it  hIioiiM  m-ok  to  »«m'U|Mi  Uk-  ol»lin'«tio» 
or  ri'ilf.'iuiii«  ill  loiu  »ur,h  of  ihuiu  ait  iiiiiy  Iw  i»ru«eiili!il 
ftir  ruduiii|)tiuii, 

Thu  wholn  HiiviiiK  ciroitod  by  iimkiii«  Ui«  uoU'n  Inoon- 
vortiblu  Ih  inonsuri'd  hy  th«  iimouiit  of  rcHcrvo  that  woulii 
liiivo  to  Ihi  ki!i»t  fur  ruilot-uiiiiK  tliiiiii.     A  Kovcniimiiit,  ut 
I'AXHi  Olio  thiit  uhviiys  lUftkcH  k<h).1  itn  iironii.sos,  «,iij<»y8 
liiglicr  cruilit  tlmii  tins  ImnkH.     Hunks  liml  u  twoiity-Hvo 
IMjr  wjiit.  nmorvo  nyainHt  circuliition  sunicient  to  inftiiitaia 
tho  convertibility  of  thoir  notos.    It  in  itiol)ftblo   that 
a  novum immt  which  kept  itn  mm  within  v/im   Mux'iin, 
would  not  mad  more  than  n  twenty  \wr  cent,  or  (ivon 
11  fifteen  per  cent,  reai^rve  in  siwcio.     Tlmt  for  tho  fliiko 
of  avoiding  this  8h«ht  burden,  any  government  «hould 
subject  its  citizens  t«>  tho  poHsiiblo  wrongs  and  injuries 
of  n  depreciated  cuiToncy,  is  n  circiunstunce  not  easily 
explninod.     Tlio  justification  alleged  is  nsually  a  sup- 
]Mmed  nocoosity.     But  whatever  momentary  advantage  a 
government  gains  by  resorting  to  inconvertible  notes,  it 
gains  at  the  expense  of  its  own  citizens.     No  other  form 
of  Uw  could  be  more  burdensome  or  unjust 

a.  Except  in  Special  Cases,  the  Value  of  these  Notes 
depends  on  the  Quantity  Issued.- -H  might  be  supposed 
that  tho  valuo  of  inconvertiblo   notos  would  dopond  on 


V'  i».  •     t  *"  ..  ^ 


[ncoavertlbUi  * 
!i)iiviirlil)lo  cur- 
ottuUI  udvtH'tiUi 
)n«y.  I(  n  ynv- 
U>N,  tlicni  i«  »><» 
i!  till!  iibti^utioii 
my  Inj  iirunutttc'il 


iht)  iioU'fi  incon* 
icrvu  that  woulu 
k  ^Dvuriiiiiuiit,  :it 
|iri)nuNi!H,  «inj«»)h 
ml  a  twonty-Hvu 
iuiit  to  iimiiitniii 
s  pi-itbnlilo    lluit 
liin  wiHO   litaitH, 
•r  cent,  or  (ivcii 
mt  for  tho  siikt) 
ri'riiuuint  hUouIiI 
ngs  aiitl  iiijuru'H 
tuiice  not  easily 
I  UBUiiUy  a  Bui)- 
Lary  iulvaiitaj,'i!  a 
vcrtiblc  iiotcH,  it 
No  other  form 
juflt. 

)  of  theie  Notfli 
j^lit  1)0  supposutl 
ATould  dopond  on 


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Canadian  Institute  fo,  Historical  Micro.ep.oductions  /  Institut  Canadian  de  mico.ep.oductlons  histo-iquas 


Jauo  of  Vnluf  nf  Irrcdremahle.  Notes.  1S7 


tho  prosimct  of  thtiir  iiltiiiiiitu  rudoiiiption.  TIuh,  how- 
ever, is  not  the  case.  Tlieir  vahie  wduM  l)e  the  .sniiie 
even  i?  it  shtjuld  bo  expressly  emvcted  that  they  are 
never  to  he  redeemed.  So  h)ng  as  they  constitute  the 
vvorkin;,'  currency  of  the  country,  ibices  of  connnodities 
expressed  in  tliat  currency  are  governed  hy  the  quantity 
circulating  and  the  rapidity  of  circulation,  just  as  in 
the  case  of  true  money. 

The  prosj)ect  of  speedy  redemption  may  indeed  limit 
the  dcptii  of  depreciation.  Notes  tliat  are  certain  to 
l)e  redeemed  a  year  hence  cannot  fall  below  the  specie 
standard  by  niore  than  the  current  rate  of  interest.  If 
they  did,  a  part  of  them  would  be  quickly  taken  up  and 
held  as  an  investment.  The  promise  of  early  redemp- 
tion may  thus  raise  the  value  of  inconvertible  notes; 
but  it  does  so  by  lessening  the  quantity  of  them  in 
actual  circulation. 

Again,  if  a  doubt  should  spring  up  as  to  the  ability 
and  intention  of  the  issuing  government  to  maintain 
the  legal-tender  character  of  its  notes;  or  if,  as  was  the 
case  in  the  last  stages  of  the  Southern  Confederacy, 
the  continued  existence  of  the  government  it.self  should 
become  doubtful,  the  notes  in  circulation  may  suH'er  a 
great  depreciation,  or  even  lose  all  exchange  value.  The 
explanation  is  that  merchants  and  others  decline  to 
receive  them  any  more  for  goods.  They  prefer  to  keep 
their  stocks  unsold  rather  than  to  sell  them  for  notes 
which  may  become  valueless  on  their  hands. 

A  somewhat  similar  case  occurs  when  a  serious  in- 


I:  t 

II 


wff'WWMPtiww^stpyy.gMMi.i  ii  "ul'Jj^ij  "I  fji 


1.'' 


IRS 


Piniiticnl  Eronoini/. 


civa.si!  of  Ihfst!  nnU'.s  is  in  jirosjK'cl,  (-vcmi  wliure  no  doiilit 
(•xists  Its  to  tlic!  ability  and  iiiti'ntioii  of  the  goveriinuMit 
to  iiiiiiiitaiii  tlioir  Ir^'al-ttiiulei  ({iialit}.  Tlio  notes  alnwly 
ill  circtilation  may  tsulliir  serious  depreciation,  even  be- 
fore any  of  the  new  issue  appear.  Holdiirs  of  j,'oods 
usuiilly  raise  their  prices  at  once.  This  rise  makes  it 
iiiilH)ssil)l('  to  sell  at  once  all  they  ought  ordinarily  to  iie 
selling':  the  supply  of  currency  is  not,  at  the  moment, 
sutlicit'iit  to  maintain  prices  at  this  higher  level.  Ijiit 
tlie  imi»eii(ling  increase  of  currency  will  make  it  pos- 
sible jiresently  to  sell  the  whole  product  at  the  advance; 
meanwhile  it  is  more  jirofitable  to  rai.se  prices  at  once, 
even  at  the  cost  of  diminished  sales,  than  to  sell  the 
whole  stock  at  the  former  prices. 

These  are  not  exceptions  to  the  general  principle  of 
pric(!s.  They  are  rather  illustrations  of  its  working 
under  excejitional  conditions.  Whatever  the  currency 
of  a  country,  its  prices  must,  in  the  long  run,  conform 
to  the  deniiind  and  su]iply  of  that  currency. 

6.  An  Inflated  Currency  does  not  promote  Industry. — 
Jllany  jjersons  are  led  to  favor  the  nse  of  inconvertible 
notes  by  a  mistaken  view  as  to  their  effects  on  trade. 
These  j-tei-sons  start  out  with  the  assumption  that  plenty 
of  nuniey  is  es.sential  to  prosiK^rity.  As  inconvertible 
notes  can  easily  be  issued  in  any  desired  quantity,  they 
hold  that  this  form  of  currency  is  superior  to  every 
other,  and  ought  to  be  freely  used. 

Their  argument  rests  on  a  very  obvious  fallacy. 
"Abundance  of  money"  is  a  phrase  that  has  two  very 


Iiijliilion  doin  nut  Make   Trmh;  Jinsirr.  I«U 


vliiiro  no  (limitt 
ho  goveriiiiuiiit 

0  iioti's  alrtwly 
litioii,  (!vcn  l>c- 
Ul(;rs   of  floods 

risti  makes  it 
arclinarily  to  lio 
it  the  uionient, 
ler  lovol.     Dut 

1  inako  it  pos- 
it tlu!  advance ; 
prices  at  once, 
lan  •()  sell  the 

■al  priiicii>le  of 
)f  its  workinf; 
r  the  currency 
g  run,  conform 
ncy. 

ate  Industry. — 
)f  inconvertible 
fiects  on  trade. 
,ion  that  plenty 
s  inconvertible 
[  quantity,  they 
[)crior  to  every 

ihvions  fallacy, 
t  has  two  very 


diU'ercnt  nieaiiinj^s.  it  niiiy  mean  n  Iiii|,'e  (piantity  of 
laoiKty  in  the  .sense  of  n  great  many  dollars;  or  it  may 
mtMUi  a  large  sujiply  of  mom-y  in  cumparison  with  the 
diiinand  for  it,  —  in  comparison,  that  is,  with  prieija, 

Money  may  ho  ahundant  in  the  first  sen.se  without 
being  so  in  the  .S(!cond.  Obviously  it  is  only  abun- 
daiKM!  in  relation  to  prices  that  can  have  any  stimuliit- 
ing  eriect  on  trade.  Increase  of  the  riurreiicy  has,  for 
a  little  while,  the  (ill'ect  of  linking  things  .sell  niori 
rapidly.  It  creates  the  situation  .'^-pfiken  of  in  (,'iia})- 
ter  XIII.,  §  10.  r.ut  as  soon  ns  prices  are  raised  to 
ccnrespoiul  w'th  the  increase  of  money,  trade  becomes 
as  dillicult,  an<l  money,  relatively  to  tiie  demand  fur  it,  as 
scarce  as  it  was  before. 

The  more  dtdlars  we  have  in  circulation  the  les.s  each 
dollar  is  worth.  With  a  currency  of  ten  thousand  mil- 
lions it  would  be  as  easy  to  get  ten  dollars  as,  with  one 
of  a  thousand  millions,  it  would  be  to  get  one  dollar. 
But  ten  dollars  in  the  one  case  would  be  no  better  for 
a  man,  would  buy  no  more  things,  than  one  dollar  in 
the  other  ca.sc.  This  is  the  inevitable  result  of  increas- 
ing the  currency ;  it  raises  all  prices, 

While  the  increase  is  going  on,  it  tends,  no  doubt,  to 
quicken  the  sales  of  goods.  But  in  order  to  keep  up  the 
effect,  we  should  have  to  be  always  adding  to  the  issue.i 
This  was  amply  shown   in  the  inflation   jjeriod  of   our 

1  It  Is  prn}iable  that  evrn  thin  would  loso  Us  (iniokcuin!,'  effpct  bi-forc 
loll!,'.  I'l-opli!  would  soon  pen-five  that  the  currency  was  gradually 
deprecivtiMg,  and  would  loam  to  allow  for  it  in  advance. 


I 


1^' 


i  .. 

-«,ji«) 


100 


JUiticitl  Kennntiiy. 


own  {rrpoiiltackfl.  Oiico  tin?  prioefl  of  things  Imd  time  to 
yut  ii(lj»ist»Ml  tn  the  iiuTciiHcd  voluiiio  of  currency,  tho 
seeming  i.lentifulness  of  money  c(!ii.sed.  Trade  was  never 
duller,  money  never  seemed  scarcer  than  during  parts  of 
tli(^  l«)riod  when,  measured  by  tho  nundter  of  dollars, 
we  had  a  groat  almndance  of  currency.  !idlati(.n  of  tlu! 
currency  in  tho  end  defeats  itself.  Hesidcs  the  ruinous 
injustice  it  works,  it  ends  hy  making  all  trade  more 
uncertain  and  dilUcult  than  it  is  on  tho  more  solid  basis 
of  hard  money. 

The  permanent  diliiculties  of  tmdo  are  not  nt  nil  duo 
to  scarcity  of  money.  Tho  hard  thing  is  not  so  much 
to  sell,  as  to  sell  at  a  .satisfactory  proilt.  K«nv  the 
fiuestion  of  profit,  as  a  matter  of  selling,  turns,  not  on 
the  highness  or  lowncss  of  jirices,  but  on  the  relation 
between  prices  and  money  wages.  The  selling  price  of 
each  commodity  must  be  sulliciently  above  the  amount 
paid  out  in  wages  in  getting  it  produced,  to  give  the 
employers  and  dealers  a  profit  on  their  outlay.  In- 
crease of  currency  raises  prices,  but  in  the  long  run  it 
raises  money  wages  in  the  same  proportion.  It  therefore 
leaves  the;  essential  diliiculties  of  the  cas(!  unchanged. 

7.  Notes  Secured  by  Pledge  of  Property.  —  Another  of 
the  erroneous  theories  relating  to  inconvertible  notes  is 
that  they  cannot  depreciate  in  value  if  they  are  secured 
by  the  pledge  of  i>roi)erty  of  some  kind.  It  is  a  favorite 
notion  with  currency  (piacks  that  every  man  who  owns 
land  or  other  safe  property,  ought  to  be  allowed  to  mort- 
<'a«'e  it  to  the  <:overiiiiKMit  and  olttain  the  issue  of  legal- 
tender  notes  "based"  upon  this  security. 


S'olfH  "h'lHiil"  OH   iVoiHrtij, 


mi 


ings  lind  timn  to 

of  currency,  the 

Triuk;  wa.s  novcr 

II  (luring  parts  <if 

nilier  of  dolhirs, 

Iiillatii'M  of  i\w 

\'u\vH  tho  ruinous 

nil   triult!    more 

nutre  solid  basis 

ro  not  nt  all  due 
;  is  not  so  much 
jirotlt.      Now   the 
ng,  turns,  not  oi< 
i,  on  the  ndation 
li  selling  price  of 
love  the  amount 
iced,  to  give   the 
luiir   outlay.     In- 
1  the  long  run  it 
ion.     It  therefore 
nse  unchanged. 
rty.  —  Another  of 
nvertible  notes  is 
tliey  are  secured 
I.     It  is  a  favorite 
•y  man  who  owns 
:.  allowed  to  mort- 
tlie  issue  of  legal- 
ity. 


The  fdtiil  dof(!Ct  of  such  notes  is  that  very  few  of  the 
lM'n|il((  who  want  money  want  land.  (Jood  anil  useful 
as  land  is,  it  cannot  In?  niovcul  from  the  place  where  it 
lie.s.  Any  man  wisliing  to  pay  a  debt  in  another  country 
could  not  send  land  to  pay  it.  If  he  took  some  of  the 
land  pledged  for  the  not(!S,  and  stdd  it,  he  could  get  (»nly 
not<'s  Itasetl  on  other  lands  as  payment,  —  which  would 
not  help  him  at  all. 

Again,  notes  .secured  in  this  way  woulil  be  liable 
t(»  imlelinite  ov(!rissue  and  depreciation.  We  need  in 
currency  notes  but  a  small  proportion  of  the  value  of  our 
land  and  other  durable  proinirty.  As  soon  as  the  due 
limit  of  issiu!  was  pa.s.sed,  a  gi  iieral  rise  of  jirices  would 
.set  in,  —  lands  rising  in  price  as  well  as  otiuM'  tilings. 
i'.y  tlie  time  tin;  issue  had  reacheil  in  amount  tlu;  orig- 
inal valuation  of  the  lands,  these  might  have  risen  to 
live  or  ten  times  their  original  valuation.  At  this  raiised 
valuation  each  piece  of  land  would  become  a  perfectly 
good  security  for  a  fresh  batch  of  notes.  So  it  would 
go,  until  by  re^xjated  iiillations,  the  value  of  the  notes 
became  zero. 

There  is  only  one  safe  and  useful  form  of  circulating 
notes,  namely  those  that  are  in  the  first  place,  readily 
ccjiivertible  into  coin  from  day  to  day  at  the  option  ol 
each  holder,  and  that  are,  in  the  second  place,  well 
secured  against  ultimate  failure  or  neglect  on  the  part 
of  the  issuer  to  keep  faith  with  the  pulilic.  Many 
other  devices  have  been  tried,  but  they  have  always 
resulted  disastrously. 


n 


I 


•If 


-  ajbrtirtWiflM 


■«.,.,■,.»    u^iiM' 


102 


fiillfiiiil   Kronnmij. 


qUCStlONS   AND   BXBIIOIIXS. 

1.  How  do  rliiiiiK''H  ill  tlm  viiliu-  of  immt-y  hIiovv  thniiiHulvi'H': 
Wliy  urn  Niiili  <'haii(,'t"*  imiM>iliiiit'/  IIdw  «1o  cIuiiikos  i»r  inin-n 
alTtiCi  tlio  juddiu'tion  i»f  gultl? 

'J.  Ilovv  (li)fs  thu  Kiiiiply  of  moiii'y  dilTcr  from  Ww  wiipply  of 
oi\wv  (irm(,MV  Wlificiii  is  tlm  ilfiiiiiiKl  for  money  iM-ciiliiirV  Dis- 
UiiHiii'*!'  Ix'twiMMi  till-  nomimil  mitl  the  vm\  dcmaml  lui'l  »"p|>ly. 

!».  Wlit'ti  a  Hiim  of  money  Iibh  Im-uu  iiwfd  iii  paying  for  goodK  al 
retail,  wliiil  di-lirniim'H  liow  soon  il  may  Ik-  similarly  usimI  a^jain? 

J.  Siiow  that  the  circulating  period  is  not  the  Hamu  for  all  imrts 
of  the  currency. 

5.   Show  that   money  jierformH  two  distinct  functions   in   Its 

circuit. 

t;.  Suppose  two  countries  have  the  same  quantity  of  currency, 
and  the  same  amount  of  products  to  l>e  exchanged,  (U.es  it  follow 
thai  their  jirices  inu^t  ho  alilic  .'  Does  it  follow  that  they  need  the 
same  (pmntity  of  coin?  of  notes? 

7.  What  causes  the  npiieaiance  of  general  overproduction  dur- 
in{,'  p.^riods  of  linsincss  depression? 

8.  What  is  meant  by  saying  that  excess  of  money  looks  like  a 
deficiency  of  goods? 

9.  How  far,  or  in  what  respects,  is  the  value  of  gold  an  excep 
tion  to  the  general  laws  of  value? 

10.  How  is  it  shown  that  changes  in  the  current  production  of 
gold  have  little  effect  on  its  value? 

11.  What  are  the  comparative  advantages  of  tlie  two  forms  of 
bank  currency?  Show  that  the  proportion  of  each  is  largely  a 
matter  of  convenience  and  business  habits? 

12.  AVhat  is  the  source  of  banking  profits  ? 

13  What  limits  the  amount  of  bank  currency  in  each  country? 
What,  roughly,  is  the  proportion  of  bank  currency  to  coin  in  the 
United  States?  Show  that  if  all  notes  were  abolished,  the 
present  volume  of  deposits  could  not  be  maintained.  [Consider 
the  increased  demand  for  coin  as  pocket  money.] 


hdW  tlioiiiMi'lvns't 
luill^liS  of    iH'iui'H 

nil  tlm  Hiipply  <if 
•y  i«!ciiliiirV'    l)\s- 
11(1  uii'l  Hiipiily. 
yiii^f  for  i;iK)(1h  nl 
ally  u.-*i'<l  iij;uin? 
Hiiiiiu  for  ull  purts 

functions  in   its 

nlity  of  fMirroncy, 
ijetl,  iloos  il  follow 
iliat  lliuy  iiiiftl  lliu 

'erpiocliictioii  ilin- 

iioiiuy  looliH  lilfo  a 

of  gold  an  cxcup- 

rent  production  of 

f  tlie  two  forms  of 
eacli  18  largely  a 


ly  in  each  country? 
eiicy  to  coin  in  tlio 
ere  abolished,  tho 
itained.  [Oonsider 
ley.] 


QurMiimn  nnd.  Kirrrttm. 


lOS 


I  i.  Whitt.  provlHloiiN  urn  niudii  for  ri>di>«inin|{  tliM  notim  of  tho 
Nutional  HuiiIchY  Im  tiicre  any  HiuMirity  for  lliu  payment  of  thuir 
ili'pofiitors? 

I'l.  How  docs  it  happen  tliiit  llie  silver  dolliirs  aio  e(|iinl,  in 
uxt'liuiige  vuliii-,  to  gold  dollai's,  itltlioii){|i  tlio  Nilver  tliey  eontain 
I*  worili  only  Ufly  uiid  odil  cuuu  ?  Do  you  tliinic  of  uiiy  otliur 
cases  of  llie  same  kind  in  our  present  ciineney  Y 

HI.  ilovN  is  it  sliown  tlial  tlie  silver  in  the  Treasury  is  not  llll- 
ing  the  place  of  a  true  H|M'cio  niNcrve  for  tlie  silver  eerlilli'ales? 

17.  Why  is  tiie  doulile  standard  liiipo.HsiMe  in  praclii'i'.''  Illus- 
trate liy  sketcliing  the  liitilory  of  the  double  »landui(i  in  the  I'nited 
States. 

18.  Wliat  are  the  advantages  of  using  Imth  gold  iind  silver 
ttM  inoneyY  llow  can  hoth  lie  kept  permanently  in  use  in  any 
country? 

ll>.  Wliat  cauHCH  tho  market  value  of  gold  to  ho  slow  in  con- 
forming to  its  natiiriil  value? 

2(».   Why  is  it  that  gold  has  strictly  no  priee? 

21.  What  is  the  weak  i>oint  in  the  seheniu  known  as  Interna- 
tional nimetallism? 

'J'J.  Mxpluin  the  recent  provisions  of  our  laws  respeeting  tiie  pur- 
chase of  silver  l)y  till'  TicMsiiry. 

'J'-\.  What  are  the  charaeteristios  of  "  InconveitiliKf  Notes"  as 
eurrency?  How  is  the  valiU!  of  such  notes  tixed?  What  injus- 
tice arises  from  overissue  of  them? 

2t.  Does  the  copious  issue  of  inconvertible  notes  make  money 
plentiful  and  trade  brisk? 

•J').  What  is  to  be  said  regarding  tho  use  of  inconvertible  legal- 
tender  notes  secured  by  a  pledge  of  property?  Could  such  notes 
depreciate  in  value? 


s 


n 

i 


s 


'  I 


f  '1 


CTTAI'TKU    XVTIT. 

WAOBS  AND  PROFITS  CON8JDERED  AH  POUTION8  OF  TUB 
PRODUCT  OF  INDUSTRY. 

1.  Preliminary  Explanations.  —Wo  now  untur  on  ft  lUiW 
bmnch  of  our  Htii<ly.  VW  Imvo  fiwn  tlmt  iirmhutlvn  in- 
dustry ciiUh  for  two  kinds  of  t'xortion  or  .sacrilicc,  natnidy, 
liilxir  and  waitin-,'.  Wo  havo  alnnuly  noted  hoiuo  coumo- 
(lUfiico.H  of  tho  fact  tliut  tlu'so  tw».  Ixmlens  nro,  in  tho 
main,  liorno  by  two  distinct  Hcts  of  men,  known  m  labor- 
crs  ftiul  omidoyorfl.  Wo  must  now  in(|uirn  how,  under 
this  soparfttit)!!  of  burdons,  tho  industrial  rowards  of  tho 
two  sots  urL-  roajH'ctivi'ly  dt'tfrmini'd. 

Tho  puy  of  liirod  laborors  wo  call  wagos.  Tho  torni 
iiicludi's  all  paymonls  for  .scrviocs  of  any  kind ;  but,  for 
tlu!  sako  of  Himplicity.  wo  shall  at  first  considor  only  tho 
wages  of  productive  luborera. 

Further,  the  term  "  wages "  is  to  bo  understood  in  the 
strict  sense.  Wo  have  to  do  hen;  with  hired  laborers 
only.  The  earnings  of  those  productive  laborers  who 
work  on  their  own  account  (<•.  <j.  small  farmers)  are  not 
strictly  wngca.  Such  producers  have  their  product,  or 
the  things  received  in  exchange  for  it,  as  tho  reward 
of  their  labor  and  waiting.  If  uU  producers  worked  on 
this  basis,  wo  should  have  no  need  of  a  theory  of  wages. 
104 


OUTION8  OF  THE 

w  untur  oil  ft  new 
lit  jiriuhu'tivd  iii- 
Hiicrilicc,  namely, 
iiti'il  mtiiu;  coMMC!- 
itlcuH  ftro,  in  thu 
,  known  ns  liilior- 
|iiiro  Jiitw,  niuli-T 
111  rewards  of  the 

vageH.  Tlu!  term 
iiy  kind  ;  l>nt,  for 
consider  only  the 

understood  in  the 
th  hired  lahorers 
ive  laborers  who 
1  farmers)  are  not 
their  i»roduct,  or 
it,  ns  the  reward 
ducers  worked  on 
theory  of  wages. 


H%t^4  iiHit  i'tv/iU 


tOB 


The  term  "  prodticl  of  industry"  is  to  h)<  imderstiMMl 
a*(  referring  only  to  tlie  Hmil  i»rodui!t,  —  the  tinishid  iir 
itijnyitliln  nimiiidditieH  that  are  desired  for  their  uwn 
Make.  It  diH'N  not  iiieludo  nuiehinery,  materials,  or  other 
tilings  that  are  UNcftil  only  as  nifaiis  towards  ]irodii<-ing 
eiijoyaiile  commodilies.  In  nilicr  wonls,  we  ant  to  re- 
gard industry  from  the  stand|)oint  of  its  ultimate  aim 
Tlie  laltor  spent  in  produeing  eapitiil  is  to  ho  n'garded 
as  lal»or  spent  in  olitaining  tlu;  enjuyalde  things  lliat 
tlie  (;apital  lielpH  to  produce.  Those  things,  not  the 
eapitiii  itself,  constitiiUt  the  natural  reward  of  mucIi 
lahor.     (Chap.  XI §  3.) 

In  our  first  study  of  wages  ftiid  profits  wo  slinll  eoii- 
Hi(h(r  wages  in  the  mass,  —  the  aggregate  wngCH  <tf  the 
wh(de  hody  of  hiriMl  lahorers.  In  the  cnsu  of  profits,  also, 
wo  consider  first  the  total  gains  of  the  whole  body  of 
employers.  Individual  wages  and  profits  wu  hIiuU  discuss 
later. 

The  whole  product  of  industry  comjdeted  from  day  to 
day  Ixdongs  to  the  employers.     Much  the  larger  part  of  it 
simply  replaces  to  them  the  wages  paid  out  in  getting 
t  produced.     The  rest  is  their  profit. 

Profits  ar(!  not,  like  wages,  the  ntward  of  a  single  kind 
of  e.xertion  or  .sacrifice.  Kmploycrs  cmild  not  he  employ- 
ers without  u  large  fund  of  savings  wherewith  to  pay 
wages.  The  wlude  capital  of  the  country,  .so  far  as  it 
has  been  produ(;ed  by  hired  labor,  represents  Bavings 
invested  by  the  emphtyers.  Profits  are,  in  part,  a  reward 
fur   tim    self-denial    involved   in   all   this   saving,     liut. 


;* 

i 


i 
.1- 


I'liiilMliaijOt'i    ■ 


ttm 


IhlUiriif    Kinnnmif. 


H»'i iiiMl!y,  i'iin»loy»'rH  iir«'  Hm^uihi'Ivch  |>riM|inliv«'  liilMtriTH 
of  u  lii^li  nrtli'r.  ImliiHtry  oimiM  not  iinmiHT  wiilimil 
Ihi'ir  wrvlcim  ill  pliuiiiiiin  ami  <lin'rliiii<  llm  work.  Tlnir 
|iri)litM  ii'waril  uImd  tlitmo  |K>rNi)iml  luiiurN  on  tlifir  I'lirt, 

lluw  iiimli  of  tliu  wliitlt'  iiiums  of  |irnfitN  imiuH  iih  u 
ri'ward  for  llu'  «avin«,  ami  Imw  lamli  for  tin'  i»'iHoiial 
laliorH  of  llu!  niiiiloyi'rM,  caiiiiot  he  ilitcovfii-tl  willi  |iii'- 
liHion,  Im-iiuhi'  liu'it!  in  iiothiiiH  in  ilio  n-Hiilt  ilmlf  to 
hIiow  iIiIh  It  in  t'ointiioii,  lii»w»'Vi!r,  to  nivo  lliu  iiaiim 
of  Inttm'Httu  till*  |H»rtioii  tlial  rt'wardn  tlm  miviii^j.  itinl  to 
UMMimii'  that  tli««  aiiioiiut  of  it  in  mIiowii  by  the  rtinviit 
rati'  of  liittTi'Mt  oil  loans.  Tlif  |Mirtioii  that  rfWiinls  thrir 
lit'i'soiial  laltor  may  Im«  calli'il  caniiiiys  of  maiiaj{i'iiifiit, 
or  iiciHoiial  lariiiiiKH  of  I'liiiiloyt'rN.' 

We  iiiakt'  no  account,  for  tlio  jircm'iit,  of  th«  fact  that 
the  natnral  atlvantaj^cn  for  carrying  "ii  each  imliiHtry  unt 
rarely  i|iiitt'  alikii  for  all  t'iinaH«'tl  in  it.  Inciiualltics  of 
o|i|>ortiinity  j^ivc  rinc  to  economic  rent,  wii'ch  will  form 
the  Hnhjccl  of  a  later  ihn|>tcr 

2.  Wagei  ai  a  Part  of  the  Current  Product  of  Induitry.— 
WageH,  (iH  wo  all  know,  aro  cnHtoinarily  paid  in  money. 
I  'I'Ih!  wlioli-  fflort  to  draw  iin  I'xiul  lino  bolwi-cn  llif  two  iKiriliniH 
of  pnillt  iH,  In  my  (.i)lal<iii,  tiillivly  fiillli'.  If  caiployirH  Imrrowdl 
ihilr  wJKilf  liiviHiiacnt  fn-ni  anotlu  r  ml  of  iiuii,  iliirc  woiilil  li.'  ti 
IhihIm  for  fxiict  rt-fkoHliiK  in  tin-  ciwu.  Since  no  inun  cnn  In-  ii  truu 
I'mi.loyur  wlilioiit  HOMiu  HaviiiKu  of  IiIh  own,  nnil  Mincf  rniployirM  nn 
u  lioily  borrow  liul  a  muiuIi  part  of  llm  wliolc  anmant,  tiny  ImvinI,  It 
woald  Mffin  inipoHHilile  to  nialto  a  nice  diHtlnotlon  iM-twci-n  tlio  two 
portionH  of  llii'ir  prollt.  It  in  lil<r  tin-  attciiiiif,  HomctlinPH  niaile,  to 
iliKtlnijuisli,  ia  till'  produi'tH  of  Imlimtry,  llu'  |"irti'iu  dao  to  cHpilal 
from  tlio  portion  tluu  to  labor  I'rotluetion  llHtlf  known  nothing  of 
eitliiT  iIlHtlnulluu. 


llH'liVf    llliioriTN 

jiritHiN'r  wiiliniit 
III  work.  Their 
11  thi'ir  I'lit't, 

ititrt    t'tlllU'N    IIH    a 

iir  till'  pt'isiiiiiil 

Vi'Ii'tl  Willi  lili- 
ri'Nillt    ilm'lf    lit 

^^'\\^'  (III-  iiiiiiio 

10  HUVillU,  lltlll  to 

liy  llii'  rimi'iil 
tit  rrw:nils  tliiir 
uf  muluiijeiiifiil, 

,  iif  thi>  fact  tliiit 

iH'li  iiidiiMlry  uro 

Iiii'i|Uiilitii>H  iif 

wll'cll   will    fnllii 

ict  of  Industry.  ~ 
paiil  ill  iiiiiiii')'. 

(■II    till*    two   |lll|'lill|IM 

'iiiployiTM  lnin'i)\v(  cl 
II,  llirrc  WKiilil  he  ii 
iiiiiii  can  lit-  II  truu 
hIihm'  I'lMiiloyrrH  uh 
idiiiit,  ilicy  liivtHl,  It 
nil  iH'lwrfll  till)  two 
NiiiiictiincH  iiiiuli',  to 
I'lioii  (liic  til  nipital 
If  kiuiWH  iiuthing  of 


fht  Smfff  of  Vtigft. 


W 


Mill  iiHitiny  iM  ,i(t  yiMNJ  ill  'ttnv\(.  TIh'  nml  wiiytm  <,r  l.tlHir 
<iili>tiHt«  of  lh«(  I'lijiiyalil.i  niiiiiiHMlilicH  that  art)  iMiiiylit 
Willi  llm  iimiHiy.  Cliaiiyi'M  of  laoiipy  whki'm  iini  of  no 
ii»ii>ti«niiiini'»'  I'xnijit  MO  far  a*  tlicy  iiii|i|y  rliaiiKi-s  of  roal 
waj^i's.  Till'  i|iii'stiiiii  (if  wiij^i'M,  tli.'ii,  it  wliiit  tli'ti-niiiiii'H 
llii'  i|naiitity  cu  fiijoyalili'  iiiiiiiiiiMliiicM  tlu'  liilmivis  uro 
alili'  to  ohtaiii.  wi'i'k  liy  wcok,  in  n'liiiii  fur  tln-ir  lal»or? 

<»iir   Hiarliii«   |ioim,   in   m-i-kiiig    llin   niiHWi-r  to   tliin 
<|iii'Mtioii.  niti^t  Im<  tilt*  fat't  alri'aily  notitu-tl,  that  tlio  hirt'd 

liilinri'rH  own  no  part  nf  tli joyaldo  jiinilurU  of  lulmr 

awnitiiijr  |iiir<liiiM.'rH  A.s  a  rule,  also,  they  have  Imt 
liitli-  to  oiler  for  j^'oiiils  lint  thoir  own  lalmr.  Only  tluj 
innri'  thrifty  anioii^»  tlu'm  have  miVfil  nnyiliinj,',  Soniu 
small  anionnU  aro  onlinarily  owinj,'  to  tlmin  an  wn^rcN ; 
I  ail  if  against  thn  wiiKt'M  iliio  wo  Hot  ofV  wlint  tliny  owo 
mc'irliaiits  ami  owiit'rM  of  lionMcs,  it  in  prohahlu  that  thu 
lialani'i'  in  tli.'ir  favor  wmiM  Ih>  Imt  fltnall. 

This  nti'aiis  that,  fur  tlu'ir  Hi«rvit'(*,H  i'l  |iroilii(iiijr  tho 
^'ooil  things  now  awaitinj^  imrrhnMon',  Uicy  havi',  uh  u 
I'lass,  lii'i'ti  paiil  alnuiily.  If,  then,  thoy  arn  to  rci-oivo 
any  coiiNitli'ralili'  part  of  tln'si'  ihin^rs,  it  imist  he  for 
prmlncinf,'.  or  lii'l|iiii«,'  t.»  prodncc,  fntnrt!  niiiinioilitit's. 
Si'iiiiiilly,  it  innst  lii>  liy  tlu.  vohintary  action  of  thoso 
who  own  till!  existing'  Hnpiily  of  money  ami  },rnii(|M. 
Whati'vcr  thcsi'  cIkmisi!  to  cunsnmo  of  tho  good  thin^jH 
already  mi  hand,  they  have  full  power  and  le},riil  ri^ht 
lo  con.snnio.  Only  whatever  they  cIiooho  to  Hparis  from 
their  own  consninplimi,  can  he  counted  on  for  thu  la- 
Nirurs.     If  they  con,sun»o    fretdy  and  Havu    little,  wages 


i « 


iii»)iii iniMimwii  liiijiji. 


\w 


rnliticdl  Efnvnmy. 


Im  1..   low;   if   thoycuaumc   little   and   save   uuuh. 
want's  will  1"^  lii^''-  ,,,         1 ,  •„., 

,,„i,l  i,.  ,,„.n,.y,  tl,o  .|U.».i..„  1...W  Kr.»t  a  vavt  ..    tl„. 
L,„,„t  ,.r„.luct  ..f  in.lu»try  i^  t.,  «..  U,  t ,«  kl-...'.»,   » 

Ills  «uythi..s.  l.«  "'"y  "»  ^''«  '""""''  """'""'  '; 
,,„yi„g  .,,„u„.,.litin,  t„r  W,  own  c„„»uMn.t......  ■..■  1-  ..'  . 

Jo  it  for  «  in  k«ine»»  with  "  "««  t"  I""!"-  "  '" 
Tei  in  the  fl.to.  ti,..»  way.  .,l«rly  tW  cnnn.,.  1. 1. 
,,„  l,„y»  ar.  lost  to  w„ge».  O.c  lal.".>=rs  cannot  also  l.»vo 

•  "'iTall  v,l,o  g..t  any  ..art  .,t  the  n.oncy  «coivcJ  for  8.,«U 
»„  U  s,„Uc;iy  aV,an.l„„  *o  l.al.it  ..f  .-vi..8.  »-  »  -  ' 
„,„  t<,  tha  tnll  extent  tl.cir  right  of  hnyn.s  th  ngs  .or 
th  ir  own  n,o.  thoro  wonhl  ho  n„ho.ly  to  h.ro  lal..,rcrs 
":;„,„re.  Wag.«  wonhl  ,Us„,,,oar  The  whole  „ro  net 
of  hulnstry  ^vonhl  he  eons.nne.l  hy  the  '•"  '*  •"■"^  "  ,„ 
If  on  the  other  Imn.l,  it  were  ,K,ss.l.le  that  a  1  the 
„,„n;y  receive.!  f..r  «o.Hls  s,,,,nhl  1...  .lev..te,l  to  lur„,« 

lal,.,rL,  the  whole  ,.r.Hl..et  ..f  i-ln»try  woul.l  u.  tant 

"";«::  ir'two  extremes,  whatever  .novorti"..  of 
the  money  r..eive,l   f..r  «.....ls  at  retail,  .  saved  an 

a„„Iie.l  t.)  hiri»8  lal...rers,  that  i.r..v.'rtu.n  ..t  the  l.t.. 
;ii,h,et  of  in.lnstry  is  therehy  .lesignate.l  as  ^v^  - 
labor.    So  that  the  whole  matter  turns  on  tae  .inestion 
of  saving. 


'  :_k 


ml    siivi-    miifh, 

t,  ii  iiiirt  <'f  till' 

thu  liilioivrs,  is 

the  iiiotu-y  t'lii- 

Whou  a  purson 

eceiveil  f<>i'  it  i" 

ption,  or  li»!  way 

to  i.roiit.     If  li" 

till!  (ommoditics 

cannot  also  have 

'cceivcd  for  goods 
.;ving,  and  sliould 
jnying  things  for 
■  to  liirc  lalK^rcrs 
ho  wholo  product 
cay-iti'iist  <;lass. 
^ih\i!   that  all  th.e 
devotod  to  hiring 
jiy  would  ill  taat 

ever  pro\)ortioii  of 
tail,  i^  saved  and 
Drtion  of  the  total 
uated  as  wages  of 
■lis  on  the  question 


Mitiifi/   U'lii/iH  ami  Jittil   WiitieH. 


199 


The  slui'i'iit  will  find  it  h(d|iful,  at  this  jMjiiit,  to  reeur 
to  tlm  diagram  on  pagi?  WW.  The  money  returning  to 
the  point  1  through  tin!  hullis,  />,  r,  //,  /,  o,  is  the  portion 
of  tlie  vliol(i  money -supply  used  in  iiiring  laliorers.  What- 
ever proportidii  this  hears  to  tht;  whole  stream  of  money 
passing  the  point  I,  that  iiroportion  of  the  total  ]>rodu<'t 
uf  industry  goes  to  the  lahorer;  as  wages.  Not,  how(!ver, 
it  must  lie  rcmeinl)er(;d,  for  producing  those  same  com- 
modities, hut  for  licl]iiug  to  pidduee  other  conimoililies 
that  are  yet  in  tlui  future. 

Tlie  secondary  hulhs,  //,  c',  etc.,  remind  us  that  money 
re(;eived  as  wag(-'s  may  he  saved  and  hecoiiu!  wages  f;ver 
again.  The  savings  thus  niiidr!  from  wages  hy  skilleil 
artisans,  memhers  of  the  learned  professions,  etc.,  consti- 
tute an  important  fraction  of  th(!  whole  mass  saved  yt^ar 
hy  year.  Their  primary  ('(feet  on  wages  is  to  alter,  not 
the  total  mass,  lint  the  ajiportionment  of  the  total  niiiss. 
The  wages  of  the  other  lahorers  are  greater  hy  the 
amount  that  these  lal)orers  save.  Of  course,  those;  who 
save  have  their  income  increased  later  hy  the  amount 
their  savings  hring  them. 

It  is  evident  from  these  considerations  that  the  sum 
of  wages,  in  any  community,  must  depend  on  two  things : 
first  the  productiveness  of  the  community's  industry;  and 
.secondly,  the  strength  of  the  saving  spirit  among  those 
memhers  of  it  who  have  savahle  income. 

If  the  productiveness  of  industry  he  given  and  con- 
stant, the  real  wages  of  the  lahorers  will  depend  on  the 
second  of  the  two  factors ;  that  is  to  say,  on  the  propor- 


.'   '% 


200 


Volitical  rkommy. 


1 1 

:» 


1 


t 

if 


ti.m  tlio  total  siKMKliiiys  of  the.  capitalist  classos  boar  to 
tlujir  total  savings,  wwk  l>y  wi-ck.  Or,  stating  tlu;  saino 
l.rinciiilc  in  tonus  of  our  diitgrani,  tlic;  (luantity  of  coni- 
nioditicH  going  to  tlio  lalKmns  will  (U'iH;n»l  on  tlio  ratio 
tlio  money  passing  through  tho  wagc-bulhs  hears  to  th<^ 
whole  stream  of  money  ollering  for  goods  at  1.  For 
example,  in  the  illustrative  case  given  on  i)age  136,  if 
forty  of  the  fifty  millions  constituting  the  weekly  supply 
of  money,  pass  through  h,  c,  h,  L  and  o,  then  the  laborers 
receive   as  wages    four-lifths  of  the  weekly  product  of 

industry. 

4.  Savings  not  Governed  by  any  Strict  Rule.  —  Since 
wages  deiH3nd  thus  directly  on  savings,  the  study  of 
wages  becomes  primarily  an  inquiry  into  the  practice  of 
saving.  If  we  could  discover  why  just  so  much  is  saved, 
we  should  have  solved  the  problem  of  wages,  liut  here 
the  real  diiUeulties  of  the  case  begin,  The  question 
how  the  How  of  savings  has  its  limits  fixed,  from  week 
to  week,  is  far  from  simple. 

Many  thousands  of  persons,  in  every  civilized  country, 
save  more  or  less  of  their  income.  But  the  cases  are 
probably  rare  in  which  two  i»ersons  having  the  same 
income,  save  the  same  precise  part  of  it.  Even  one  and 
the  same  person  saves  a  larger  proportion  of  his  income 
at  one  time  than  at  another.  Some  save  with  a  definite 
object  in  view,  such  as  to  provide  for  their  children  or 
for  their  own  old  age,  or  to  carry  out  a  specific  object 
iu  business.  Others  save  with  only  a  general  desire  to 
arow  richer,  and  still  others  because  they  have  a  greater 


cliissos  btiiir  ti> 
Mllui;  the  saiiio 
iiiiilily  of  oom- 
1(1  oil  till)  ratio 
1)S  hears  to  th(! 
jcls  at  1.  For 
m  page  136,  if 
I  weekly  svipidy 
icn  the  lalHircrH 
kly  product  of 

t  Rule.  —  Since 
^,  the  study  of 
the  practice  of 
)  much  is  saved, 
nges.  l>ut  here 
The  question 
ixed,  from  week 

ivilizcd  country, 
it  the  cases  are 
aving  the  same 
Even  one  and 
)n  of  his  income 
e  with  a  definite 
heir  children  or 
a  specific  object 
[general  desire  to 
iy  have  a  greater 


Suvini/s  not  Suhjcct  In  Stiiit  li'iilis. 


1!0I 


income  thiiii  they  care  to  sp(!nd  at  the  nmmciit.  It  is 
very  clear  ihcii  that,  as  saving  depends  on  the  I'rcc  clinici' 
uf  each  individual  who  lias  income  Itcyond  his  acluiil 
wants,  tlunti  can  Ih;  no  formula  or  uniform  rule  iis  to 
savings.  Wi;  cannot  say,  for  example,  thi't  if  liit;  pro- 
duct of  industry  he  increased  hy  a  given  percentage, 
savings  will  he  increased  l»y  the  .same  percentage.  Slill 
less  can  it  he  assumed  that,  when  the  product  is  iii- 
creas(ul,  tlu!  wli(d(!  increase  will  he  .saved.  AVe  can  only 
lu;  sure  that  increase  of  product  causes  increase  of  sav- 
ing.s.  As  to  the  precise  amount  of  increase,  no  two 
persons  and  no  two  communities  would  he  likely  to 
behave  quite  alike  in  a  given  case. 

6.  General  Truths  Rsgardiiig  Savings  —  Yet  some  gen- 
eral principles  may  be  laid  down  in  regard  to  the  total 
savings  of  each  comnuuiity,  and  the  Uuctuations  to  which 
the  total  is  liable.  Some  persons  save,  no  doubt,  merely 
in  order  to  postpone  the  enjoymci  .if  their  income. 
They  would  save  nutre  or  less  even  if  there!  ly  they  could 
add  to  their  wealth  nothing  beyond  the  amount  actually 
saved.  lUit  the  amomit  likely  to  be  saved  in  that  way 
would,  fall  far  short  of  meeting  the  needs  of  the  laborers. 
Their  readiness  to  work  for  less  then  their  labor  eventu- 
ally produces,  gives  n  chance  to  make  savings  a  source  of 
income.  Most  of  the  .savings  ma(L  in  a  civilized  country 
are  made  with  a  view  to  taking  advantage  of  this  ojipor- 
tunity.  Even  those  who  would  save  something  without 
this  inducement,  .save  more  becau.se  of  it. 

This  being  so,  we  can  safely  a.ssume  that  the  umount 


:■(■ 


I 

i«'' 


I. 
(■•■ 

't;fi 


i 


J 


■I 


4' 


202 


VolUicnl  Keonoiny. 


nt'  siiviiij^H  likoly  t<t  U'  uii>.'<'  in  any  given  coiunmnity 
will  at'iu'iul  larj^cly  ""  tl>«  i"'*'^'  "^  1"'"''*'  ^'^  ^^'  «"'"*''^  ^'y 
tlio  use  of  saviiit^s.  An  iiicmiso  »•!'  inolits  wouM  slitnu- 
lato  tlxiso  who  save,  to  siive  more  Htrenuously.  A  full  of 
profits,  on  tho  otluir  lumd,  wiiuUl  tend  to  chock  their 
energy  in  saving. 

Again,  it  is  evidcMit  thac  nuieh  depends  on  the  character 
and  temperament  of  those  in  each  commniiity  who  have 
savable  income.  If  these  he  careless  nhont  the  fnture, 
fond  of  lavish  and  costly  enjoyments,  their  savings  are 
likely  to  be  meagre.  Trolits  mnst  he  high  in  order  to 
induce  such  men  to  save  nt  all.  On  the  other  hand, 
where  the  richest  mendters  of  the  community  are  men 
of  energetic  spirit  and  simple  tivstes,  httle  inclined  to 
luxurious  living  and  costly  indulgences,  a  large  proportion 
of  their  income  is  sure  to  he  .saved  and  applied  to  indus- 
trial enterpiises.  In  such  a  community  the  rate  of  profits 
may  be  comparatively  low  without  checking  the  flow  of 
savings.  Wages,  therefore,  may  be  steadily  high  in  com- 
parison with  the  productiveness  of  industry. 

6.  Bearing  of  these  Truths  on  Wages.  — These  general 
truths  form  the  basis  of  our  reasonings  on  the  subject 
of  wages.  It  is  by  means  of  them  that  we  are  enabled  to 
explain  the  fundamental  relation  between  the  wages  of 
hired  laborers  and  the  product  of  their  labor. 

It  follows  from  them  that  there  is  in  every  commu- 
nity, at  any  given  time,  a  limit  to  the  amount  of  savings 
that  will  l)e  made  for  a  given  rate  of  profit.  If,  for  any 
n^asou,  profits  should  increase,  savings  may  be  expected 


;n  comiimnity 

I  bf  j^iiitit'tl  by 
wouM  slimu- 

isly.    A  full  of 
0  chock  Uioir 

II  tbo  diaracter 
nity  who  liiivc 
)vit  th((  future, 
ur  savings  are 
Ljh  in  order  to 
c  other  hainl, 
unity  are  men 
tie  inelinetl  to 
arj^c  iiroportion 
plied  to  indus- 
e  rate  of  prolits 
ina  the  How  of 
,y  high  in  com- 
itry. 

-These  general 
on  the  subject 
3  are  enabled  to 
n  the  wages  of 
labor. 

every  commu- 
ount  of  savings 
fit.  If,  for  any 
lay  be  expected 


Contifdhm  hdweeii  Wtvjra  and  Pinjitn.  203 

to  increase  also;  if  prolits  decline,  savings  tend  to  fall 
oO".  Again,  if  the  coininunity  should  becoini!  more  eager 
in  the  jiursuit  of  ridicH,  more  ready  to  give  iip  present 
enjnyincMit  for  this  sake  of  future  gain,  .savings  may  be 
exjieeted  to  increase  without  the  stimulus  of  higher 
profits.  If  the  people  .should  become  less  thrifty,  less 
energftie  in  the  struggle  for  wealth,  savuigs  would  be- 
comt!  less  in  amount  even  though  profits  should  remain 
as  high  as  before. 

The  ellect  on  wages  of  a  change  in  the  volume  of 
savings  is  too  obvious  to  need  remark,  seeing  that  sav- 
ings must  become  wages  in  order  to  gain  ii  profit.  lUit 
it  is  necessary  to  oViserve  that  chang(?s  of  wages,  the  pro- 
ductiveness of  industry  remaining  tlu;  same,  are  followed 
in  turn  by  changes  in  the  rate  of  profit.  The  profits  of 
the  employers  in  any  given  mass  of  product,  consist  of  its 
excess  over  the  wages  paid  out  in  getting  it  produced. 
The  less  the  wages  were  the  greater  the  profit  is.  If, 
therefore,  wages  should  fall,  the  productiveness  of  indus- 
try being  uiu;hanged,  profits  must  become  greater  than 
before.  Unless  those  who  have  savable  income  have 
become  less  ready  to  save  than  ff)rn;erly,  this  increase  of 
profits  must  evoke  increase  of  saving  and  restore  wages 
to  the  former  level.  And  similarly,  if  wag(!s  should  rise 
without  increase  of  product,  the  resulting  decline  of 
profits  would  check  the  How  of  savings  and  thus  cause 
wages  to  declin  >   '.Tain. 

7.  Normal  Wagef'  and  Profits. — It  follows  that  we  have, 
in  the  case  of  wages  and  profits,  much  the  same  kind  of 


'JOt 


Jhlificid  Kconouuf. 


'} 


iidjiistiiij^  jirtK'CH.s  as  takes  placi!  in  st'ttlin^'  lln'  j^ciicial 
li'vt^l  of  iirict'H.  When,  at  any  f,MVi!n  luvt-l  of  waycs,  tlm 
nnicsiininlin;,'  rate  of  piulit  <'ausi'H  iiit>ii  to  save  iiioit'  of 
tlirir  iiiroiiic  than  is  ni-cdi'd  to  pay  tlu'sc  \va<,'('s,  the  <,'i'n- 
t'liil  level  of  \va;,'i!s  will  tenil  to  rise,  and  the  {general 
rate  of  prolits  tend  to  decline.  On  the  other  hand,  wIumi 
tlie  rate  t)f  jirolit  resnltin^'  from  any  given  level  of  wages 
docs  not  induce  men  to  savo  enongli  to  pay  these  wages, 
the  general  rate  of  wages  will  tend  to  fall  and  the  rato 
of  profits  to  rise. 

There  is  therefore  for  evi'ry  community,  at  any  given 
time,  a  normal  level  of  wages  and  of  profits,  to  which 
current  (or  market)  wages  and  profits  tend  to  conform. 
Wages  are  at  their  normal  level  when  the  correspond- 
ing rate  of  profit  induces  men  to  save  enough,  and  only 
enough,  to  jiay  these  wages.  When  wages  are  at  the 
normal  level,  profits  are  at  the  normal  rate.  Normal 
wages  and  [)rofits  go  together;  it  is  simply  a  casu  of 
(Mpiilihrium. 

The  (juestion  whethei  normal  wages  .shall  he  high 
or  low  in  any  cf»mmunity  will  de])end,  as  already  indi- 
cated, on  two  things:  first,  the  productiveness  of  the  com- 
munity's industry;  secondly,  the  strength  of  the  saving 
spirit  among  tlioso  who  own  the  prodiu;ts  of  its  industry. 
Both  of  these  factors  are  subject  to  change;  a  change 
of  either  would  hriiig  a  change  in  the  normal  level  of 
wages.  If,  for  example,  the  existing  capital  of  the 
country  should  he  inherited  hy  a  class  of  men  much 
less  inclined  to  save  than  the  present  owners  of  it,  the 


Nor  III  III  U'liijin  'Hill  I'roJitH. 


2(»r. 


Ijr    till'   J^tMUTlll 

1  I  if  waycH,  tliu 

>    HllVC    niOH'   of 
VI1},'('S,  tll<'    <,'t'll- 

(l  tlu!  {^t'licnil 
lor  Imiul,  whiiii 
level  (if  wnges 
ly  tliose  wages, 
1  and  the  rato 

,  at  any  given 
ulitr*,  til  wliii'h 
111  to  eonfuini. 
Iio  correspniKl- 
mgli,  and  only 
j;eH  are  at  the 
rate.  Nnrnial 
iply  a  case   of 

shall  lie  h'v^h 
s  already  indi- 
ess  of  tlie  roni- 
of  the  saving 
of  its  industry, 
iigo ;  a  change 
ornial  level  of 
capital  of  the 
of  men  much 
rners  of  it,  the 


normal  level  of  wages  would  iiievitalily  de.dine.  Agnin, 
if  Ihe  laliorers  should  lieiome  more  diligent,  more  encr- 
gctic,  and  more  anxious  to  make  tlie  product  of  industry 
as  great  as  possilde,  normal  wages  would  rise;  for  in- 
crease of  product  is  sure  to  evoke  increased  savings. 

Tiie  normal  level  of  profits  depends  primarily  on  the 
character  of  those  who  have  savahle  iiunnie.  Hut  it 
also  deiiends  somewhat  on  the  amount  of  iinume  tlit  le 
is  which  may  lie  easily  .pared.  The  larger  the  lixcd 
ciipital  of  a  country  is  in  proportion  to  its  population, 
tlie  lower  is  its  normal  rate  of  profits  likely  to  lie.  I'nr 
the  greater  its  fi.ved  capital,  the  greater,  at  any  given 
rate,  will  the  total  mass  of  protits  he,  — the  greater,  that 
is  tu  say,  will  the  total  income  of  its  capitalists  he. 

Now  it  is  much  easier  to  save  out  of  a  large  income 
than  out  of  a  small  one.  A  man  who  has  a  very  large 
income  can  hardly  spend  more  than  a  fraction  of  it  on 
himself  without  n  ridiculous  ami  oll'ensive  display  of  Ids 
wealth.  (Ireat  incomes  are  therefore  distinctly  favorahle 
to  great  savings.  Even  though  the  rate  of  proiits  idiould 
bo  declining,  the  men  whose  proiits  are  reckoned  on 
milUons  of  dollars'  worth  of  capital,  can  easily  save 
enough  every  year  to  add  greatly  to  their  wealth.  Such 
men  have  no  further  need  of  .saving;  but  they  seem  to 
save  as  eagerly  for  the  mere  delight  of  carrying  out 
great  industrial  enterjiri.ses,  as  other  men  do  under  the 
spur  of  actual  need.  Some  of  them,  we  may  hoiie,  are 
also  stimulated  by  the  desire  to  benefit  their  fellow-men 
by  the  intelligent  use  uf  their  wealth. 


4*J 


I 


f 


1 

I 

4 


* 


2W» 


lijlUiiiil  Jii'oiwiaif. 


Till!  iioriiiiil  riito  {»f  iirnlitH  UmhIs,  tlicrcforf,  to  deiliiu) 
UM  IV  country  ^rown  in  lixml  niiiital,  esiiticiiiUy  whim)  tlils 
liccoiiii'H  concfutinti'il  in  i\w  IiiiiuIh  of  a  ftiw  mu-u  of  ^wM 
iiuluMli'al  amliilioti.  Tli((  lu'iiclit  accrues  tu  llii^  liiltuiuiH 
8.  Waget  Inauenced  by  Pait  Savingi.  —  Whilo  wagim, 
at  any  ^^\\vn  time,  tli'iiond  tliroctly  on  contmniiorary  Hav- 
ings, it  is  easy  to  hco  tliat  thuy  art-  alNo  ^n-atly  inllm-nccd 
by  past  savings.  We  hnvo  just  seen  tliat  a  liij^li  i»roiior- 
tion  of  fixed  cai)ital  to  popiiliitio!!  is  favorable  to  lijnli 
wages,  by  reason  t  T  its  tendeney  to  lower  the  normal  or 
necessary  rate  of  protits. 

JJnt  tliere  is  a  much  more  important  sense  in  whicli 
such  cajiitnl  aflects  wages.  It  adds  enormously  to  the 
jiroductiveness  of  industry.  It  Ims  therefore  u  double 
tendency  to  raise  wages:  first,  by  inerensiiig  tin;  yield  of 
labor,  and  secondly,  by  causing  a  higher  proitortioii  of 
the  total  yield  to  be  used  as  wages. 

Now  the  fixed  capital  of  the  present  time  is  mainly 
ft  result  of  the  savings  of  past  years.  The  general  body 
of  laborers  would  probably  never  have  been  willing  to 
'>">rk  for  ft  return  so  distant  ns  such  cfti)ital  offers.  Men 
who  have  always  spent  as  rapidly  as  they  have  earned, 
would  scarcely  have  faced  the  long  waiting  for  reward 
that  is  necessary  in  opening  mines,  preparing  land  for 
tillage,  constructing  factories,  warehouses,  ships,  rail- 
ways, etc.  Nothing  but  the  offer  of  wages  co\dd  have 
induced  most  of  them  to  take  part  in  such  undertakings. 
The  great  industrial  inqirovements  of  past  years  were 
therefore  made  possible  by  the  foresight  and  self-denial 


Injlueni'f  of  PiiHt  iSiuiiii/H  on  ll'itjcg, 


2(>1 


f(in',  to  <li,'(liiu) 
iilly  wliuit!  tills 
w  Mien  of  ^ri'iil 
to  tlio  liiltDi'ejH 
-Whilo  wagim, 
iti'iai»triiry  «uv- 
'tttly  iiillui'ii'jcj 
,  II  hi^l'  i»rtiinir- 
ronildu  to  lii^li 
•  tliu  uorniiil  ur 

wnse  in  whicli 
rinously  to  tlio 
rcfuro  u  (lt»ul»lu 
iig  tli»!  yield  of 
r  iiniiioitiuu  of 

time  is  mainly 
ho  j^entiral  liody 
boon  williiij,'  to 
tal  ollurs.  Mon 
oy  havi!  oanietl. 
tinj,'  for  reward 
paring  land  for 
ses,  ships,  rail- 
iges  could  have 
•h  undertakings, 
past  years  were 
;  and  self-denial 


nf  tlioHc  who  HUpjtlied  till)  HttvlngH  ntTi'^wtfy  (o  pay  the 
liiltoriTs  fur  making  them.  The  great  adtlitioii  theHo 
impruviMiii'iil.s  have  made  to  the  pmdiK  t  of  pre.stMit  in- 
dustry goes  mainly  to  tlie  liihorerH.  Their  lirst  ttlleet, 
no  douht,  was  to  incronHo  the  gains  of  tlie  employers; 
hut  the  higher  prolit  so  gained  led  to  a  rapid  imreasi-  of 
savings  and  consoipjent  increase  of  the  total  volume 
of  wages. 

We  see,  tluMi,  that  in  any  country  whi-re  the  spirit 
of  saving  is  strong,  and  has  heen  strong  for  several 
generations,  two  importunt  conseiiuences  renult  from  it 
for  the  present  volume  of  wages.  In  thi!  first  place, 
the  laho;  of  the  country  is  used  in  the  ways  tliat  allord 
the  largest  riiturns;  every  known  device  for  adding 
to  its  productiveness  at  tlie  cost  of  lunger  waiting,  is 
utilized  to  the  fulK'st  e.\tent.  In  the  second  place,  the 
stronger  the  spirit  of  saving  at  the  present  time,  the 
greater  is  the  proportion  of  this  enlarged  product  going 
to  form  the  wages  of  hired  hdiorers. 

The  ellect  of  sustained  saving  on  the  gemsral  wealth 
of  a  community  is  too  obvious  to  need  extended  com- 
ment. Saving  is,  in  more  ways  than  one,  the  moilutr  of 
riches.  The  countries  that  have  been  notable  for  the 
saving  spirit  of  their  people  are  now  the  wealthy  coun- 
tries of  the  world.  Readiness  to  .save  usually  goes,  no 
doultt,  witli  a  readiness  to  e.\ert  one's  self  in  other  ways. 
The  countries  where  savings  are  large  are  generally 
countries  where  the  people  are  industrious  as  well  as 
thrifty.  But  savings  are  necessary  in  order  that  labor 
may  be  used  efl'ectivcly. 


I 


V  , 


s  ■ 

!t 
14 


ti; 


:.-t 


208 


lUitiiiit  finmoiHif, 


I 


J 


WhliMiii  ImiiIi  iii.liiHiry  ami  ihrifl  n  t«iiiiiiiiiuity  n'limiiiM 

I r,  •tvfii   Ihoiinh   hurroiiiKl.il    by  «m!rlli>wiiiK   imlunil 

wniltli.  On  th.t  «»thur  liiiiul,  <lilliKi'ii<i!  aiul  I'ttdiomy 
«rt'iitu  rifht'H  fVi-ii  in  tlif  fur.-  ».f  nwut  ol.statlcM.  Nfw 
Kii;;lauil  \\.\s  Iml  few  iiatiirul  a<lvaiita)i.'H  fur  |.riMlinaioii. 
Till'  iiiali'iiuls  U>r  Us  ill»lllslri^•^<,  and  tin'  fnud  fur  iU  in- 
liiil.itaiilH.  liavn  very  larKcly  to  W)  l»ruii«ht  in  from  oili.r 
jilai'i-H.  Mill,  ill  >*l'il"  of  tlii'Mi'  «liHailvaiilaK'«'H,  tlu'  aci'Uiiiii- 
liittnl  wealth  of  itH  iMM.pl.'  is  creator  tliaii  that  of  jiiuny 
hij,'lily-favori!<l  .'oimtriuH:  ami  then!  am  few  |.liMfs  wh.Tt' 
tlii^  wam'H  <»f  lalior  aru  ho  hinh.  It  i«  a  Htrikiii«  illusiiu- 
tinii  of  the  I'owt'r  of  Hiistaiiicil  Having,  cuuiduU  with  thu 
ill(l\l^ttioUH  Hpirit. 

9.  The  Rate  of  Profits  hard  to  Diicover  la  Practice.— 
Tilt'  r.'lutinii  of  piolils  to  wnj^'i'H  in  Hinipli!  ciioiikIi  an  u 
matter  of  theory.  We  Hay  that  the  amount  of  profit  eoii- 
tiiiiieil  in  tiie  iiroilmt  «>f  imliislry  eompleled  each  iliy  or 
each  week,  is  the  exeesH  of  the  produet  over  the  wajfes 
jmiil  out  in  Mfttinj,'  it  made.  The  waycs  (t.  «.  thu  rcul 
waj^es)  conHisted  of  a  certain  mass  of  food,  clothiii},',  and 
nthi-r  eomiiiodilies.'  The  prl^duct  comsiHts  of  a  eertaiii 
j^nuiter  imiHs  of  .similar  eommoditieH  produced  in  return 
for  the  wayes.  The  dillereiice  between  the  two  mu.sL 
therefore  be  profit  for  the  employers. 

This  is  <iuite  true,  and  it  i.s  hij^hly  important  to 
flce  (luitu  clearly  that  this  excess  of  j.roduct  over  the; 
real  wayes  Daid  in  producing  it-  is  the  only  source  of  real 

1  Tht'HC  couHtiluU'  till'  real  co»t  to  thu  tuiploytTS  of  llio  Uiliigs 
pri)(luci'il  by  liireil  labor. 


iiiuiiity  rt'iiiuiiDt 

tiiwiii^    imtiirul 

mill  ocoiiuiiiy 

ilistiulcH.       Nt'W 

fur  |irii(lurti(iii. 
f*  1(1(1  for  iu  in- 
t  ill  frotii  other 
H'H,  tlu!  ut'cuiini- 
I  timt  (if  niiiny 

•\V  |ilil('l'S  wlliTf 

liikiiij^  illuslru- 
luiilial  wilik  Uiii 

r  la  Practice. — 

lie    clloll^ll    IIH   n 

lit  I'f  jirolit  coii- 
'li'd  cadi  (lay  or 
over  th(J  wiijfcs 
!8  (t.  e.  tlui  real 
j(l,  flotliiiij^,  and 
HtH  of  a  corlaiii 
(lucL'd  ill  rutuni 
I  till!  two   iiiusl 

ly  iiiiportant  to 
•roduct  over  the 
ily  Hourcu  of  real 

jyiTB  of  tliu  UiiiigH 


Tht  Htitf  «/  l*r>ijit  li.iiil  til  himn'tr. 


'im 


profit  in  huMin.'Nu.  Y«tftlitll-  rcllt'ctlon  xhoww  ii«t  that 
it  wiiuld  ho  very  hard  to  discover  with  t'xndii.'HH  h^w 
;,'ri'at  a  part  of  each  weck'^  prodint  is  |proll»,  mid  how 
much  is  iiicndy  rc|iliirenii.'iit  of  the  «aviiiy>«  eNiK'ndcd 
ill  KettiliH  it  itrodiiccd. 

The  waj^eH  paid  out  hy  the  i'liijdoyerH,  (Irwt  aiid  hiMl, 
ill  tlio  proihutiou  of  tlie  coniiiiodilics  (dinpleted  in  any 
;^'iv('n  we('l<,  were  not  paid  out  in  any  one  previoif  week 
'{\w  ex|M'ndilure  was,  in  fi'ct.  Npread  over  iiioiilhM  and 
even  years,  It  was  ho  intiinattdy  Mended,  at  many 
pMJiitM,  witli  tlie  cost  (tf  the  jtro<hnts  of  other  weeks 
that  no  exact  Hcparation  is  possilde. 

That  larp!  part  of  the  eiiiphiyers'  cost  wliich  con- 
sisted of  wiiyes  jiaid  for  deariiij^  hind,  opening'  mines, 
constructing  and  repairiii;^;  huiltiiiins,  maciiineiy,  rail- 
ways, etc.,  —  in  a  word,  the  wlinje  industrial  plant  of  llie 
ctiuntry,  cannot  Im  accurately  apportioned  to  any  f^iveii 
mass  of  Hnished  products.  Kavinj,'9  ex|M'iided  for  the 
more  diiralde  forms  of  capital  are  replaced,  not  in  a 
lump  Slim,  hut  hy  a  series  or  stream  (tf  small  instalments 
riinnin;,'  as  lony  as  the  ca|tital  lasts. 

Now  the  employerH  can  seMoiii  foretell  with  accuracy 
how  Ion;,,'  each  part  of  their  produitive  apparatus  is  ^oiny 
to  last,  or  what  repairs  it  will  need.  Any  portion  of  it 
may  wear  out  sooner,  or  may  last  lon>,'er,  than  they  can 
now  foresee.  Every  part  of  it  is  liahle  to  he  superseded 
and  niadi!  valmdess  at  any  time,  liy  tlu!  invention  of 
hetter  devices  or  methods.  They  cannot  tell  how  niir.h 
moro    their    existing    apparatus   will    eventually   yiohl. 


I 


I 


I 

I 
■fc' 


'A\0 


JUituiil  Kojnnm^, 


TlH'y  lli«'n'f'»r«'  eiimM»l  U'U  with  |tn«ilp.lnn  Imw  miuh  ••{ 
tliii  »rl«liiul  liilMir  of  iitukiii^t  it  l*i  il»«rK.'iiM«  ti.  n  ulvni 
liinM  of  |.r.M|iiit.  It  fnlt.twM  llmt  llit-y  <aiiu<.t  •  ,  l.h 
ii.riiriuy  li'-w  iiiiiili  of  ••»<li  wi'.'k'H  |.ro<lu«  I  of  liuluntry 
U  i<«  Im'  «»a  dtiwii  HH  r-|»liu<'iiM'iit  «»f  iIm»  wii^.h  «|nHit  in 
nl.liiiiiiiiK  it.  An.l  if  tlu'y  «imiiot  ti-ll  hxik  tly  how  niii*  li 
It  huN  «o(it  th.'iii,  of  •••mrmi  thoy  uuuiot  toll  cxiutly  how 
iiiiK  li  thi'ir  prollt  i«. 

Tho  dirtbulty  of  nnot'rlrtiiiliiK  tho  pxnrt  proportion 
of  prolltM,  ill  any  j,'iv('n  iiiunh  of  <<inipl»'t<'il  priHlmi.  is  no 
r.'iiHon  for  dou!.liii«  wli.'lh.jr  tlu-r-  !..•  un  .'xii.t  rtilution 
IhIw»'«ii  wiik<-h  unit  prolilH.  Thi-  troiil.l<!  nrini-H  in  a.'iilin« 
Willi  Uniitwl  iMtrtioiiH  «>f  tlm  pro«lu.i  iirij*in«  from  t'luli 
InvoHtiiiont  of  naviMKn.  Tint  luount  cannot  Im<  rloMotl 
nihl  this  hitlimct)  Htru<k  nntil  tho  inv.stin.'iit  ilM-lf  him 
yi.'M.Ml  iu  \vliol(.  nlurn.  Siii<'<'.  in  iIh^  loiiu  run.  m-arly 
nil  forniM  of  rapil.il  .lo  yii-l.l  lln-ir  linal  ri'turn.  th«  I»ro- 
p.irti..n  of  pvolit  in  «'aih  wt-nk'h  prcMlurt  (1o«h  ovontuully 
aim loHi)  itHclf  witli  -ilnuiHt  Hoifiititid  inimrucy. 

Of  counto  ovury  Iiumjih'hh  man  ki'opn  ncconntH,  whirh 
nri!  Huppom-d  to  hIm.w  h"v  m'H'h  r>roflt  hu  w  inakiii«. 
liul  lli.i  result  in  only  npnrf<-.-M  Tim  r-  ^v'^\^^^  of 
his  prolitH  for  any  p«'rior,  .  ■  ..leu.  ,n  lar^c  part,  on  thu 
I'stiinatcd  valuo  of  his  l»nihlin«H,  inachin.'ry,  Htock,  etc.,  an 
tlu'y  hUiuI  ut  tho  lu-ginninK  and  a^ain  at  the  t'lid  of  thu 
lH.'ri«>d.  ThiH  may  niiHWcr  wi-ll  i'noiit?h  for  i-nulical  piir- 
]Mmi'H;  hut  it  i»  only  an  estimate.  It  mi>.y  lat»!r  provu  to 
have  Im'imi  Imsi-d  on  niiuh  tn.i  hi^h  or  loo  low  an  opinion 
of  tho  productive  puwcr  slill  left  in  the  lixed  cui.itul. 


♦* 


r 


II  liiiw  inui'h  •)( 
•itlilit  ti>  n  iiivitii 

•iiiiii'it  •  .  !.li 
111)  t  of  iinliiMtry 

Wllf{)'H    i<lM!l|t    ill 

IK  tly  iiow  tiiut  )i 
lull  uxttctly  hciw 

xart  proportion 
•il  pMilini,  JH  tio 
II  (<xiirt  ntliitioii 
nriNi'H  ill  (UhiHiik 
iNiii^  from  twU 

llllliot     1h<     cloMt'tl 

tiiii'iil  itxt'lf  hiiH 

Imiu  run,  iii'iirly 
ri'turn,  tlio  pro- 
tliK'H  (ivitiituatly 

luirucy. 
nccouiitH,  whiili 

It  hi!  in  iiuikiii;,'. 

rl|l»     T"    V<!Mi||J»     of 

liir^^f!  piirt,  on  tlm 
i!ry,  Htock,  etc.,  an 
lit  till)  »!ml  of  tilt! 
for  jiriu'tical  pur- 
ii>.y  latiir  provu  to 
DO  low  ail  o)>iiiioii 
lu  lixuil  cupitul. 


U'uf/M  tiful  I'f^fiU  nW   !>i*ii,ut  "Shon*"         'ill 


10.  Whkm  not  Fountl  by  D«(lu<?ttn|{  ProHta.  -  It  h 
(ilivioiiN,  from  tilt*  ftu'iii  of  till'  <  I  ■< .  Iiitw  ^ri'itt  nii  srri^r 
i«  iiiititii  Ity  tlio>ti<  who  nMtiimo  that  wayi'H  niirt  proHtn,  m 
\H\xin  of  thi'  pMihirt  of  liiiliistry,  uri'  i-m  liitivi*  of  cmli 
•  •tht'r,  ami  thiit  if  thi'  prolltn  litt  iliitin ltd,  thf  ri<Ni<liiii 
will  Imi  tlin  {Hirtioii  K">»U  t"  till)  lalMiri'rN  a*t  wa^KM, 

CoiiNiiliTiil  n«  •oiitt'iiiporary  portioiin  of  tlii)  priMliu't  of 
iiiiliHtry,  wa^fH  niul  prolltM  am  nut  »t  all  iDiiipl'iiiioiitH 
of  I'ach  ttther.    Tli^y  nrini)  from  railically  iliUVniit  wiiyn 

of  cliviiliii^  tli(>  pl'iiiliirt. 

If  from  tho  whulu  pitMliKt  you  tukf  away  tho  part 
that  in  prolit,  tho  ri'maimlir  is  not  wa;,'i>M  Imt  nphuti- 
iiM'iit  of  thtt  piiMt  Maviii«{H  ()X|N-ii(li'(l  ill  p'ttiiiy  the  prodin-t 
iiiiiilu.  Tli«  coiiiplt'iiM'iit  of  your  prolit  in  i\w  outlay  mathi 
ill  ordi-r  to  ((aiii  tho  prolit. 

Oil  till)  othiT  haiiil,  if  yoii  taki«  away  tin-  part  that  In 
In  j{ii  lis  wa^{i's,  till)  ri'inaimliT  is  imt  prolit,  l»iit  tliat  por- 
tion of.  till)  proiliKt  whii'li  till!  rapitalist  riass  art!  to  (;i»i|. 
Nuiiu!  in  tlii'ir  own  eiijoyinunt  Thu  comploiiiuut  id  what 
in  navcil  is  what  is  «j»cnt. 

Till'  portion  wn^i-s  may  thon)foro  overlap  thu  portion 
pKilit  to  an  iiiili'linito  Dxtmit.  It  ilocs  in  fart  ovi-rlap  '», 
wlainnvur  :i  rapitalist  savi-s  any  part  of  his  piodt.  Tim 
.«iiiii  of  waj^i's  anil  pmtits  in  any  j^ivon  pii.v'.iut  may 
tlii;rufort)  greatly  uxcdi'iI  tin)  proiliii't.  It  follows  that 
wiigi's  cannot  bo  disco vorcd  by  dcduiaing  jirotita  from 
the  product 


i  " 


j^ 


CHArTEIl   XIX. 

WAGES   OP   INDIVIDUAL   LABOEBRS. 

1    Factors  on  which   Market  Wages  Depend. -Since 

Uu.,  whul.  vc.hunc  oi  savings  is  shaml  lunong  the  pro- 
ductivo  lal.on.,rs  Nvho  work  for  hire,  it  is  clear  that  tioch 
,uan's  share  aepends  on  two  factors:   first,  the  amonn 
of  savings  to  be  investoa.  and  seconcUy.  the  nuu.bcr  of 
laborers  to  be  hired     Any  change  in   either  of  these 
factors.  with.n.t  a   con-esin.nding   change   m  the   other, 
,nust  raise  ov  lower  the  general  level  of  indivichml  wages 
If  the  number  of  lal)orers  te  increased,  or  the  flow  ol 
savings  grow   less,   wages   nu-st   tend   to   fall.     If   the 
■.nunb^^r  of  laborers   grow  less,   or   the   tlow  of  savu.gs 
increase,  wages  must  tend  to  rise. 

When  the  number  of  laborers  in  a  country  is  in- 
creased, the  new-comers  begin  at  once  to  share  u,  the 
savings  oflering  for  labor,  but  they  do  not  at  once  add 
correspondingly  to  the  means  of  saving.  This  lies  in 
the  nature  of  production,  so  long  a  time  being  necessary 
for  producing   most  of   the  commodities  of   which   real 

wages  consist.  .         . 

The  case  is  obscured,  in  practice,  by  the  mingling  of 

the  new  laborers  with   the   old.     If   the   new  laborers 

were  set  at  work  separately,  without  disturbh.g  lu  any 

m 


iBRS. 

lepend.  —  Since 

I'lear  that  v.adx 
st,  tlio  anionnt 
the  uuuibcr  of 
either  of  these 
:  in  the  other, 
idiviihifil  wayeK. 
or  the  How  of 
o  fall.  If  the 
How  of  Ravings 

coinitry  is  in- 
to share  in  the 
not  at  once  athl 
r».     This  lies  in 

being  necessary 
s  of   which   real 

the  mingling  of 
he  new  laborers 
listurbuig  in  any 


Changes  of  Market   Wages. 


213 


Wity  tlie  cdurse  of  industry  among  tiic!  others,  then  it 
would  be  (dear  that  the  lirst  use  of  their  labor  must 
Ih',  mil  to  add  to  the  food,  clotiiing,  and  oth(!r  eummoili- 
lii's  available  for  laying  tiieir  wages,  but  to  i)rovide  the 
tliree  forms  of  additional  capital  necessary  for  enabling 
tlicm  to  produce  such  commodities. 

The  mixing  up  of  the  new  laborers  with  tlie  old  lau- 
not  alter  this  essential  feature  of  the  case,  though  it 
greatly  comidicates  the  study  of  it.  We  may  be  sure 
tliat  it  is  still  true  that  the  presence  of  the  new  labor- 
ers involves,  as  its  lirst  efleet,  the  production  of  in- 
crea.sed  capital  ratlier  than  tlie  production  of  increased 
cofumoditi.!S.  The  jiroduct  of  industry  cannot  be  in- 
creased in  less  time  than  commodities  can  1)e  produced; 
tlie  increase  must  be  built  up  from  the  foundations.  It 
is  therefore  a  necessity  of  the  case  that  a  considerable 
period  must  elajise  before  the  new  laborers  can  add  their 
full  quota  to  the  enjoyable  ])roducts  of  industry. 

In  the  meantime,  whatever  tliey  receive  as  wages 
iinist  be  drawn  from  the  products  of  other  labor,  ami 
nuist  be,  at  least  in  part,  taken  from  savings  that  would 
otherwise  have  gone  to  the  original  laborers.  I  say  "in 
part,"  because  the  general  fall  of  wages  resulting  from 
the  increase  of  laborers  seeking  employment,  would  open 
a  prospect  of  higher  profits  from  the  investment  of  sav- 
ings. This  would  probably  give  rise  to  more  strenuous 
saving  on  the  part  of  those  having  spare  income,  and 
would  thus  increase  tlie  volume  of  savings,  even  before 
the  new  laborers  began  to  add  appreciably  to  the  stream 


214 


Politiail  Kconomy. 


$:■ 


^ 


of  iMijuyaUlt;  r..innuKlities  txvnilnl.l.^  for  use  in  paying 
wnycs.  'V\w  c..n.s.-(iucn..-o  wouUl  !'•'  tl'i't  wages  would 
not'  full  in  as  great  a  ratio  as  the  nuniLer  of  laborers 
had  been  increased. 

In  the  converse  case  of  a  sudden  decrease  of  laborers, 
wages  would  rise,  but  not  necessarily  in  the  same  rati(. 
as  °the   laborers   are   diminished.     The   flow  of   savings 
seeking  investment  may  be  cheeked  because  of  the  ies- 
.sened  °  hance  for  making  profits.     Again  the  temporary 
check  of  investment  during  periods  of  business  depres- 
sion, implies  diminished  earnings  for  the  laborers  as  a 
body.     On  the  other  hand,  when  business  revives  again, 
wages  may  rise  for  a  time  above;  their  ordinary  level: 
the"  amounts  held  back  from  investment  during  the  de- 
pression   arc  then    brought    forward   to   be   otlered    for 
labor,  in  addition  to  the  current  savings  of   the  tune 
itself.     These  are  obviously  not  exceptions  to  the  prm- 
ciple  that  wages  deiKjnd  on  the  ratio  of  savings  to  the 
number  of  laborers.    They  are  rather  illustrations  of  its 
working   under  changing  condition...      No  circumstance 
can  affect  the  rate  of  wages  in  a  community  except  by 
first  altering  this  ratio. 

2.  Classes  of  Laborers.  —  The  general  rule  of  market 
wages  just  given  for  the  general  mass  of  laborers,  holds 
true  also  f<.r  the  members  of  each  group  or  class  into 
which  the  whole  body  is  divided.  The  rate  of  pay  for 
each  kind  of  labor  depends  on  the  demand  for  it  as 
.compared  with  the  supply.  If  the  numl«r  offering  any 
kind  of  labor  increase,  without  increase  in   he  aniount  of 


180  ill  imyiiig 

wiij^cs   would 

LT  of  laborers 

se  of  laborers, 
,ho  same  ratio 
[)W  of  savings 
ise  of  the  los- 
tlie  temporary 
iisiuess  (lepres- 
!  laborers  as  a 

revives  again, 
ordinary  level: 
during  the  de- 
be  ottered  for 
;s  of  the  time 
ns  to  the  prin- 

savings  to  the 
istratioiis  of  its 
o  circumstance 
uiity  except  by 

rule  of  market 
F  laborers,  holds 
ip  or  class  into 
rate  of  pay  for 
smand  for  it  as 
Ijer  offering  any 
u  the  aniount  of 


fTow  Competition  nffcda   Wngen. 


215 


siivings  oll'ered  for  that  kind  of  labor,  the  rat»!  of  pay  for 
it  falls;  and  vice  versa.  This  fall  (or  rise)  in  the  wages 
(tf  particular  classes  or  groups  of  laborers  may  take  placo 
without  disturl)ing  the  general  level  of  wages. 

Probaldy  W(!  should  all  agree  that  the  fair  rule  of 
relative  wages  would  bo  to  make  the  wag(!S  oi  each 
occupatit)U  proportional  to  the  quantity  of  labor  and 
other  sacrifice  it  involves.'  There  is,  however,  no  stand- 
ard for  measuring  the  ([uantity  of  labor  and  other  sacri- 
lice  involved  in  each  occujiation,  except  the  one  afforded 
by  the  conduct  of  the  laborers  themselves  in  choosing 
occupations.  This  brings  us  to  the  fundamental  prin- 
ciple governing  differences  of  wages  in  dilleient  occupa- 
tions, namely,  the  greater  or  less  activity  of  free  com- 
jietition. 

If  every  laborer,  in  choosing  his  occupation,  were  able 
to  choose  it  freely,  with  sole  reference  to  his  own  inter- 
est and  desire,  differences  of  wages  could  not  be  perma- 
nent, except  where  they  correspond  to  real  differences  in 
the  character  of  occupations.  For  wo  may  safely  assume 
that  laborers  have  at  least  the  wish  to  do  the  best  they 
can  for  themselves ;  that,  therefore,  if  they  had  full  free- 
dom of  choice,  they  would  ordinarily  choose  the  occupa- 
tions that  seemed  to  offer  highest  wages  in  comparison 
with  the  whole  sacrifice  demanded.  This  would  be  the 
state  of  things  known  as  freedom  of  competition. 

3.  Erroneous  View  of  Competition.  —  It  is  a  common 

>  The  Htudont  must  bear  in  uiind  tlio  meaniug  of  "quantity  of 
labor."    See  Chap.  XL 


M 


2\C^ 


Political  JCconnmy. 


I 

3K 


(!rr(»r  to  n'},'nr(l  cniiiiK'tition  aa  a.  force  wliicii  U'li.ls  to 
.Icpicss  all  wayos,  prulils,  and  prices,  ami  in  fact  evory- 
thiny  that  conies  under  its  inllucnce. 

If  competition  had  the  tendency  this  view  attributes 
to  it,  then  clearly  wages,  profits,  and  prices  must  long 
since  have  been  reduced  to  zero,  for  oompotition  has 
always  l)e(Mi  more  or  loss  active  among  men.  This 
lonsideration  ah.ne  ought  to  bo  enough  to  show  how 
mistaken  the  view  is. 

The  mistake  arises  from  looking  only  at  one  side  of 
the  case.  Competition  has  no  power  either  to  raise 
or  to  depress  all  wages,  or  all  prolits,  or  all  prices.  In 
the  case  of  prices  we  have  already  seen  that  its  solo 
tendency  is  to  establish  uniformity,  to  prevent  one  pro- 
ducer from  getting  a  higher  price,  or  from  having  to 
put  up  with  a  lower  price,  timn  other  producers  arc 
getting  for  the  same  article.  How  higli  or  low  all 
prices  of  commodities  sliall  be  depends  on  the  demand 
and  sup|>ly  of  money,  — a  matter  over  which  competition 

lias  no  control. 

Similarly  in  the  case  of  wages,  eomju'tition  iias  noth- 
ing to  do  with  fixing  the  general  level.  It  simply  tends 
to" remove  inwiu.alities  that  do  not  rest  (m  dilTcrences 
in  the  labor  performed.  In  a  state  of  full  competition, 
laborers  would  avoid  employments  in  which  wages  hap- 
|ienc(l  to  be  low  in  proportion  to  'he  labor  exacted,  ami 
would  choose  those  in  which  the  wages  were  high.  This 
action  on  their  part  wouUl  cause  wages  to  rise  in  the 
one  set  of  employments,  and   to   fall   in  the  other  set, 


.  I? 
1 


'^l\ 


Competition  nu/i/  a  Leveller, 


217 


llioll     ttUlllH    to 

in  fact  evory- 

icw  nttrilmtcs 
es  must  Itiii}^ 
iiil»otitit)n  has 
;  men.  This 
to  show  liow 

it  one  aide  of 
ithcr  to  raise 
ill  prices.  In 
that  its  sole 
•vent  one  pro- 
Din  havinjf  to 
producers  arc 
r\\  or  low  all 
)n  the  deinaiid 
eh  competition 

ilion  has  noth- 

t  sinij)ly  temirt 

on  (lilTcrenccs 

ill  competition, 

lieii  wages  liap- 

ar  exacted,  and 

ore  high.     This 

to  rise  in  the 

the  other  set, 


until  a  condition  of  c([uality  were  reached.  The  same 
principle  would  apply  t(i  the  case  of  employ  'rs  <)l('ring 
dillerent  rates  of  pay  for  the  same  or  similar  kinds  of 
lahor;  no  one  employer  could  ohtain  lidtorers  o.xeepl 
on  the  condition  of  paying  them  as  high  wages  as  any 
other  emidoyer  was  ready  to  pay  them. 

Competition  tends,  no  doubt,  to  lower  wag(>s  wherever 
they  are  above  the  common  level;  but  it  c(piiilly  tends 
to  raise  wages  wherever  they  are  below  the  common 
level.  It  is  simply  the  principle  of  each  man's  (h)ing 
tlu!  luist  he  can  for  himself  by  all  fair  and  honorable 
means.  The  laborer  acts  in  free  competition  wiicn  he 
goes  where  he  can  get  highest  wages.  The  enii>loyer 
does  the  same  when  he  gets  all  the  labor  lie  can  for 
his  savings.  The  tendency  of  both  ellbrts,  taken  to- 
gether, is  not  to  raise  or  lower  all  wages,  but  to  create 
uniformity  in  wages. 

Freedom  of  competition  surely  destroys  nothing.  All 
that  men  produce  they  have  as  the  reward  of  their  hibor 
and  waiting,  —  competition  or  no  competition.  All  that 
the  saving  classes  save,  the  hired  classes  receive  as 
wages,  whether  with  or  without  competition.  This  is 
all  they  can  in  any  case  receive ;  freedom  of  competi- 
tion aflects  only  the  mode  of  sharing  it  among  them. 

4.  Temporary  Obstructions  to  Competition.  —  Under 
division  of  labor,  the  wages  and  prolits  of  each  industry 
depend  on  the  value  of  the  product.  When  th((  market 
value  of  the  product  ri.ses  above  its  natural  value,  the 
lirst  effect  is  to  rai.se  the  profits  of  the  employers.     Under 


4 


218 


J\)litif(U  Jifoninui/. 


llio  .stimulus  of  the  liighor  prolit,  nilditioiial  nixviiij^H  nro 
tittmcted  into  tho  liusiiicHa,  and  tlio  increased  deiiiaud 
for  laborers  qiialidcd  to  produce  the  coiuuiodity  causes 
their  wages  to  rise. 

In  the  same  way,  when  the  market  value  of  a  com- 
modity falls  Im'Iow  its  natural  vahie,  tlu;  ilrst  cll'ect  is 
a  fall  of  itrofits  for  the  emidoyers  who  produce  it.  IJut 
tho  fall  of  profits  causes  less  savings  to  bo  invested  in 
l»roducing  the  commodity.  As  a  result,  the  wages  of 
the  laborers  in  the  industry  fall' 

Now  if  labortirs  could  change  their  occupations  quickly, 
these  changes  of  wages  would  be  slight  and  of  short  dura- 
tion, liut  here  we  come  on  one  of  the  many  obstructions 
to  perfect  freedom  of  competition.  Changes  of  employ- 
ment are  not  easily  made.  Every  occupation,  above  tho 
very  rudest  and  most  elementary,  retpiires  some  degree 
of  training  and  special  knowledge.  A  change  means 
forfeiture  of  the  .skill  already  acquired,  and  loss  of  time 
in  learning  a  new  kind  of  work.^ 

Kalher  than  incur  the  loss  and  trouble  of  changing, 
men  usually  persevere  in  their  old  calling,  even  under 

1  To  the  extent  of  the  difference  between  producing  at  high  pressun; 
and  pnxhicing  at  low  pressure,  the  change  of  deiniind  for  hibor  in  any 
industry  may  taltc  place  at  once.  In  the  industries  using  a  great  deal 
of  fixed  capital,  the  change  cannot  well  exceed  these  limits  in  any 
brief  space.  Even  this,  however,  is  enough  to  make  a  serious  differ- 
ence for  the  laborers. 

8  The  concentration  of  single  industries  In  particular  towns  in- 
creases greatly  the  difficulty  of  changing  employments.  1,'vbon'rs 
who  would  change  must  move  to  another  town  in  addition  to  making 
the  sacrifice  spoken  of  iu  the  text 


al  Rfivinf,'H  nro 
•onsod  (Iciiiaiid 
imodity  cnuses 

iluo  of  a  cnni- 
!  first  cll'uct  is 
oiluco  it.  Hut 
be  invested  iu 
the  wages  of 

lations  fiuickly, 
I  of  short  diira- 
iiy  obstructions 
gcs  of  eniploy- 
tiou,  above  the 
}s  some  degree 
change  means 
ud  loss  of  time 

lo  of  changing, 

ug,  even  under 

lit;  at  liisli  presHure 
11(1  for  labor  in  any 
using  a  gri-at  di'al 
lu'su  limits  ill  any 
,ke  a  serious  iliffiir- 

irticular  towns  in- 
yiiu'iits.  l^aboHTs 
lulditiou  tu  making 


Ohstaeteit  to  Frrc  Co n\ petition. 


219 


HMhictid  wages.  In  the  main,  th.'  rc-ndjustnit'iit  of  wages 
has  to  lie  lirought  about  thmiigh  llie  choice  of  occu- 
lialioiiH  niiide  by  the  new  Idtorers  wlio  iiro  constantly 
coming  forward.  These  can  mostly  be  counted  on  to 
choose,  auKing  the  industries  o|M!n  to  them,  tho.se  that 
oiler  best  wages.  I>y  tlieir  action  it  is  that  the  supply 
of  labor  in  each  industry  is  eventually  adjusted  to  tlie 
detnand,  and  wages  are  made  to  luive,  or  tend  to  have, 
oidy  such  did'crences  ns  correspond  to  permanent  diller- 
ences  in  the  quantity  of  labor  involved. 

We  thus  see  that  competition  among  the  laborers  acts 
somewhat  shiwly;  also  that  the  length  of  time  necessary 
for  bringing  the  market  value  of  each  commodity  into 
agreement  with  its  natural  value,  is  the  lengtli  of  time 
necessary  for  bringing  the  market  wages  of  its  producers 
to  the  level  of  other  wages. 

5.  Permanent  Obstacles  to  Free  Competition. — Freedom 
of  competition  implies  that  the  choice  of  occupations 
.shall  be  made  without  constraint  or  compulsion.  It  is 
not  indeed  necessary  that  this  shall  be  so  in  every  case, 
since  all  occupati<jns  must  have  some  recruits.  If,  when 
any  industry  happened  to  have  a  comparative  deficiency 
of  laborers,  a  sufficient  number  could  come  into  it  to 
restore  the  equilibrium,  that  woidd  be  enough  to  keep 
all  wages  under  the  equalizing  influence  of  competition. 

We  know,  however,  that  even  this  condition  is  not 
fulfilled  in  •  ractice.  The  range  of  free  competition  is 
limited  and  cliecked  by  a  great  variety  of  circumstances. 
These  may  be  classified,  in  the  main,  under  three  heads : 


in 


I 

I 


i 


J 


220 


I\)litienl  Kmunmi/. 


Kirst,  tlioso  that  nro  locnl  in  tlu-ir  imtiiiv.  11.  r."  tli» 
olmtad.i  t<»  eotiii>«titiou  in  distaii.f,  with  all  that  thw 
iini'lioM:  f'»«t  of  travi'lliii«.  tlu!  troul.lo  of  liii.liu«  n.ii.l..y- 
nuMit  amniij^  straii'^.'rM,  roluctauci!  to  h-avt!  hmiu!  aii.l 
fricii.ls,  ftc,  Th.'s.'  l.ical  imiM'diiu.'iita  arc  givally  intfii- 
sili.'il  l.y  ihv  .UlliTcnccs  of  cliiiiiiti",  laii^uaHf,  .'Hil  ivli^^ioii 
which  i-ivvail  ill  tho  world  Tho  coulrasts  of  waK.-.s  ho- 
twuon  ciamtrics  aro  vory  strikiii}^.  In  JaiHUi,  for  cxaiii- 
jilc.  wa«c8  aro  har.lly  ouo-fourth  as  high  as  in  the  Uuilcil 
Htati'8.  Kvon  in  Kurope,  they  aro  not  ranch  nion!  than 
half  as  high  as  in  onr  conntry.  If  it  woro  u  HinipK- 
anil  easy  niattor  for  laborers  to  inovu  from  one  ctmn- 
Uy  to  another,  these  wi.lo  contrasts  in  wages  conUl  not 

last 

In  tho  sccoiul  pl.ice,  thoro  nro  ohstndos  to  frco  coni- 
IK'tition  growing  ont  of  tho  neeil  of  nuich  longer  training 
for  some  eniployrsients  than  for  others.     This  point  h 
already  been  spoken  of  in  connection  with  the  value  of 
products  of  skilled  lahor  (Chap.  XII.,  §  3).     The  princi- 
pie  is,  however,  of   much  widtir  application  than  could 
be  shown  in  connection  with  value.     A  considerable  pro- 
portion of   the  occupations  demanding  long  preimralion 
have  no  specific   products,  being   coiuK^ctcd  with  trans- 
lK)rtation,  exchange,  banking,  the  learned  i.rofessions.  etc. 
Further,  there  is,  strictly,  no  commodity  wlu.lly  produced 
by  skilled  labor,  nor  is  there  any  wholly  produced  with- 
out it.     The  so-calle<l  products  of  .skilled  labor  ar(>  merely 
those  into  the  production   of  whi<>h  such  labor  enters 
most  largely.    Even  if  skilled  labor  entered  eciually  into 


Inetjualitifit  of  lyni/en. 


SSI 


re.  lien*  tilt' 
nil  tlint  this 
iiiliii}^  fiuplny- 
/i!  liniiK!  and 
grt'iilly  iiitcii- 
',  .111(1  ivlij^ioii 

'S   'if  Wll^fH  Ik!- 

mn,  Cor  oxnm- 
iii  tlio  Uiiitcil 
K'li  limn!  tliiiii 
vori!  II  Hiiiiplc 
1)111  out!  cnilli- 
IgCH  cuulil  not 

<  to  froo  cnin- 
loiim'r  tniiniup 
riiis  iioiiit  1> 
li  tilt!  \a\w  of 
».     Tho  princi- 
on   than  cDuld 
nsiilerablo  pio- 
n^  jiii'panition 
0(1  with  tran.H- 
proft'ssions,  otc. 
holly  iiid(Uu'»!(l 
I)ro(luciHl  with- 
ihor  arc'  merely 
h  labor  enters 
eil  c«iually  into 


I 


nil  [irodiii'tion,  in  whieh  cane  it  would  have  no  cllnct  on 
valuefl,  the  Hcnrcity  of  it  would  Htill  cause  itn  roniii- 
neration  to  lie  hi^^li.  It  is  scaree  only  heeause  the  msi  of 
lon^  tniiiiin;,'  aels  ns  u  itertimuent  harrier  to  freedom 
of  ('oni|ietitioii. 

Thirdly,  many  oliHtacles  to  free  coni])ctition  nrise  from 
the  faet  that  many  o('en|iatious  call  for  natiiriil  ^ifls  of 
mind  or  Imdy  that  the  great  mass  do  not  possesx.  Any 
em|iloymi!iit  that  reipiires  nativ,'  intelli;,'enee,  (pijckm-HH 
of  disnTiinient,  artistic  instinet,  dear  jiid^'inent,  liie  fae- 
iilly  of  tirj,Mni/in;^  and  <  oniiiiandiii;,',  or  any  other  special 
faculty,  is  Ihereliy  closed  to  tlie  ^wnl  majority  of  men. 
KviMi  thoHO  cmploymentH  which  .simply  rei|uiru  muscular 
strenj,'th  are  therohy  tdo.sud  to  more  than  onudialf  of  thu 
whole  community. 

('•inimonly  eiiouyh,  ohstacle.s  of  this  third  kind  are 
in  addition  to  tliu  need  <if  Imi^r  training  and  education. 
Ill  the  hij^htir  (iinphiymeiits,  ur  "  profcs.sioiis,"  this  ia 
uniformly  tho  case. 

6.  Permanent  Inequalities  in  Wages.  —  Tt  would  he 
iiiipossilile,  in  this  little  book,  to  go  into  nil  the  «lotails 
of  dill'ereiices  in  wages  arising  from  these  impedinuiiits  to 
freedoiu  of  competition.  Tht;  geiuTal  principle  govern- 
ing tliiMii  is  clear.  At  the  bottom  of  the  scjile  wu  liml 
the  great  body  of  common  or  "unskilled"  laborers:  farm- 
hands, liimhermoii,  teamsters,  miners,  firemen,  iinvvio.s, 
hodmen,  sailors,  fishermen,  etc.  IJetween  these  emphiy- 
ments,  in  nny  given  region,  there  is  fairly  comjilete  free- 
dom of  com|H3tition,  so  that  tho  permanuiit  dillerences 


i 
it 


;f 


J 


iff 


222 


lUitieal  Kef>nomg. 


of  wu«.'«  from  ono  to  th«  oHu-r  .I-'Ih-ikI  oh  Uu.  nw.aU't 

or  l.'«H  nllriutiv.'iifHH  of  lwIi  i-loyiMcnt.    DoiiiiMiriiiK 

,lill..r.'nt  .•ouiitii.'M.  Ii(*w.!vcr.  tlu-ru  nru  i'oiiHi<li'ml.lo  coii- 
IriiMtM  owiiiK  to  aliHcnco  uf  (m^  cioiup'titioii. 

At  tuo  oth.T  nia  of  tho  Hiulc,  wo  liii.l  Hum.*  wIiomc 
<.(Tiii«itioM«  n'«iiiirn  Hi^-cial  gifts  uiul  r.wtly  traiiiiiiK: 
fluiKriiiU-ndiMi's,  liin-.l  uimuh^vth,  ixrvhiUivtn,  hank  nwli- 
l.TH,  lawycrH.  (l.Ktora,  etc.  VVaguH  in  i\wm  wvM\nxliom 
vary  greatly  fn»iM  \H;mm\\  iuuhoh;  but  tlioy  iiro  onli- 
narily  many  times  hi«l»ur  than  thosu  of  tho  unHkillfd 

ma.sH. 

lU!twpcn  these  oxtremoH  there  nre  nmny  gra<latioiiH  of 
wages,  tleiiendiiig  in  each  case  oti  tho  greater  or  1«h8 
latency  of  tho  obstacles  to  freedom  of  comiK-titioii. 
Thus,  next  fthovo  tho  common  lahorern  come  tho  arti- 
Hans  or  mcehnnic^s,  — tho  men  wlio  havo  to  learn  a  tnulo. 
Next  above  mechanics,  those  who,  in  addition  to  ac- 
«,uirii.g  a  i-articulur  kind  ..f  skill,  must  also  have  a 
go(.d  degree  of  e.lucatit.n  and  general  intelligence:  en- 
gravers, modellers,  engineers,  chemists,  teachers,  pr.H.f- 

readers,  etc. 

No  rigid  dassifu^ation  of  occupations  by  cartings  is 
l.<.sHible.  Wages  in  each  trade;  vary  widely  on  personal 
grounds.  Energy,  integrity,  diligence,  and  si«)cial  alti- 
tude for  tho  work  are  pretty  sure  to  raise  the  jiossessor 
above  the  general  level  of  his  calling.  The  opposite 
(lualities  are  pretty  sure  to  have  the  reverse  ellect.  A 
good  teamster  may  earn  nu>re  than  a  i^or  Uiilor.  —  a 
skilled  engraver   more   than  an   indillerent  luv,yer,  and 


iin  tliii  KtiuitiT 
III.  (;<mi|Miriiin 
iiiHi»li»ml)lo  co»- 
Lioii. 

11(1  lliiwf  \vh«»H<' 
I'liKtly  traiiiiiii{: 
iclH,  Imiik  cimii- 

ll*HU    U<'(!ltpatinllH 

I  tlicsy  iiro  <»rili- 
)f  till)  uiiHkillcd 

ny  unulntioiiH  <»f 

j«n'aLor  or  1«h« 

(if    cdiiiiK'titittii. 

I  como  tlu)  arti- 
to  learn  a  tnulu. 
addition  to  ac- 

ist   also    liave   n 

intolligcnco :  en- 
toacherM,  proof- 

s  l)y  oarninKS  is 
idcdy  on  jM^rsonal 
imd  Hi«H'ial  ai>ti- 
lisii  the  jtosHCSSor 
;.  The  opposite 
•everse  ellect.  A 
I  jHior  Uiilor,  —  a 
■rent  lav,yer,  and 


InfquiilUiff  nf  \t'(tj/in. 


HO  on.     Ill  gciu'nil,  the  hiylif-r  lln-  (Miu|«iii.)ii  lli.-  wider 
tliis  ratine  of  diU'iTt'Mci'  in  carnini^N,' 

Of  niuisi.  II  (citain  jtroportion  of  cadi  kind  of  lulx^r 
i.s  needed  in  a  eountry:  the  inccise  anioimt  depending 
on  the  nalnni  of  its  induNtriuH.  The  honive  of  the  ,  hiif 
lit-rnianent  ine(inalities  of  wageH  for  dill'ereni  kimU  ut 
lalM)r  iM  the  fact  thai  the  laborers  May  heavily  toward 
those  eniploynients  that  nuike  leaxt  rail  for  intellij;ence, 
education,  and  skill.  In  jropoition  to  the  demand  there 
is  always  a  vastly  ^rreator  supply  olleiiu),'  of  nn--killed 
lalKir  than  of  skilli'd. 

7  Wages  of  Women. —  The  low  wnnes  of  women 
allord  a  good  illustration,  though  a  huueulalde  one,  of 
the  principle  controlling  dillerences  of  wages.  The  nnm- 
her  of  wonan  who  need  to  work  for  wages  is  foilunalely 
nnich  smaller  than  the-  nundier  of  men.  Hut  tlnir  luck 
of  physical  strength  liars  them  (ait  from  all  hut  a  few 
productive  employments  The  conventional  standardH  (»f 
feminine  mcnlesty  limit  still  further  the  range  of  occu- 
pations oixjn  to  them.  The  result  is  that,  in  the  com- 
paratively small  numher  of  enijiloyments  to  which  they 
have  acci'.ss,  tluire  is  a  constant  oversupply  of  their  laltor 
in  comparison  with  the  demand.  Conseiiuenlly,  women's 
wages  are  nnich  l(»wer  than  men's;  and  there  is  no 
remedy  for  the  ine(niality  except  in  either  lessening  the 

'  It  M  one  iif  tlu!  IcrtHt  li<>|«ful  fcnlarcH  of  (he  lulmr  (irpnnlznlloim 
that  tlu-y  Hccm  to  aim  jil  a  dciul  level  of  wukch  for  itll  who  ImpiMii  to 
be  (loiiiK  the  mhiik!  kind  of  work.  Nothlii),'  kmiM  he  inoiv  fatitl  to  the 
industriul  hucci'hh  of  ii  coiiiiiiiuiity  lliiiii  the  iuhjiitioii  of  thut  priiiclplo. 


v« 


.1 

'I 


934 


lUilifM  Kiun»mff, 


,„„iiIh  r  of  wuiii..n  wlio  w..rk  Cr  wii«.m.  or  in  fU.'ii.liii« 
thu  rHi.«.'  nf  ..m|.lnyi,i..ulH  o|N.|i  tn  tli.>i.>.  K..rtiii..a.-ly. 
,»  iiM.vi'iMKiil  ill  till'  l»li«'r  •lirufliuii  ncumi.  t»  Ih>  gniiiK  ..ii 
ill  all  iivili/t'tl  nmiitrioH. 

It  U  i-iiKy,  ill  cumH  uf  llii«  kiii.l.  tn  iiiiitnk.-  tlui  trim 
naiiirn  ..r  ilif  ailli.iiliy.  himI  i'»  ''l'"""  I''"  "  l»'>r.lh.n.n- 
...!ii.««  of  ..iiil.loy.TH"  for  ovilH  wlii.li  .■iiiploynH  urn 
iM.w.'rl.'^K  to  |.n'v.'iit.  \\\m\\mn  mimi  .oiil.l  liar.lly  l«t 
,.x|K..toa  lo  rmi.loy  any  <1hm»  of  liiLorrrn  «t  u  Vm.  Tliu 
wii«.-H  tliity  ••»»»  iill'.i'l  to  iM.y  to  woiiH-n.  ill  i.PKlu.tiv.. 
...riiiuitioiiH.  luv  liiuil.Ml  by  ll.-  low  t.x.liuiiK.-  valu..  of 
tl,..  j.nMliiit.  Til.'  low  valtu'  of  til.'  |.roa;i.tM  of  f.-iimlo 
lalHtr  iM  .111.'  t..  til.'  .!X<i<H«ivi^  Hiipi.ly  of  ili.uii,  in  .oiii. 
|MiriN.>ii  with  .ttliiT  (•..iiiiii...lili.>* ;  mi'l  tliis,  in  iln  tnrn,  ih 
duo  t..  till)  fiict  that  w..nifii  .n.w.l  into  u  few  iu.ui.a- 

lioiiM. 

If  tho  coMiiiiuiiity  <oiiM  1...  in.lu.iMl  to  pay  hi^h.'r 
l.ri.vM  f..r  th.'  .■oiiiiii.Klitii'M  i-nnltuwl  l.y  f.'inul.)  l>il".r, 
an.l  t.»  hiiy.  Ill  tl...  a.lvaii.H*.  tlio  wh..l.!  HUl'l-ly  ..ir.'n'.l. 
wap'H  of  woni.'ii  wo.iM  hoom  l•is.^  Till  thu  uiiii.l..y.'rH 
can  K.'t  hi^h.-r  i-ric-H  it  is  {.miIihIi  to  rui.n.uch  them  for 
thu  low  wa^.-H. 

8.  Normal  Waget  of  Individual  Laborori.  — It  f-Uows 
fiuii,  111.'  i^iiiHipl.^s  Hlatc.l  m  this  uii.l  the  l.r."(H..lin« 
chai-U'r,  that  there  is,  in  niiy  yiven  iii.liistriul  Hituiition, 
n  normal  rate  of  wages  \ox  each  kind  of  lahor.  This 
rule  h..l.lH  to  the  market  rate  much  the  8amo  sort  ..f 
relation  that  natural  value  holds  to  market  value.  It 
is  thu  rate  that,  with  a  normal  volume  of  savings,  would 


•»■> 

A 


tr  ill  «*xii>iiiltiiit 
Fttrliiiiutt'ly, 

to  Ih!  U<*illK  I*!! 

ititnkn  tlio  triio 

!iti  "  liiirtl  luiurl- 

«iiniliiy»«r»i  Mh» 

iiiilil    lianlly  Ixt 

ttt  II  loHN.       Till! 

1,  ill  |iri«lui'tivt' 
■liiint;t;  valiit"  t»f 
tluctH  of  ffliialt! 
llioiii,  ill  t'oiH- 
n,  ill  ilH  liirii,  is 
I  II  ft'W  iM'cupa" 

to  I'liy  lii;{lnT 
ly  ft'iiiiilii    liilxii", 

8Ui>l»ly  on'ttntl, 
1  tliu  employnrH 
jiroiich  them  for 

ori.  —  It  f'MiiwM 
il  the  preceding' 
ustriul  Hituutinii, 
of  hih..r.  TliiH 
,ho  same  surt  <>f 
iiirket  vtthie.  It 
uf  saviiigs,  would 


tailif  lli«  Miipply  of  nit  h   kiii.l   «.(   liiltMr  to  |h>  **|tiii|  (•» 

tllM  •IiIIIIiIIkI         l>ll|i>ri>l|tl>M  of   Wll((«'H  HM   liot    llorillill   Whi'll 

llu»y  Imiil  to  it  MJitriiii)^  of  JiilNiivrN  from  oin*  imlii^try  lu 
aihttliur. 

When  niiythliiK  <«.iiih  to  niiNo  the  iimrket  y«i\\iv%  „f 
lalioiiT^  ill  y.'in'rai,  aliuvn  tin-  iiiitnial  rati-,  ».aviii«  in 
eliMck«-«l  mill  wii«..s  fall.  \V|„.|,  ssi^vn  iiiv,  f-.r  any 
roiwuil,  ii«low  the  tioiliiat  li.vel,  mtvilig  U  Mlimiilati'tl 
l»y  the  hi«h  rate  of  prolltM,  nmi  wiigeM  Who. 

When  wiifjeH  in  any  ue.inMition  are  aliove  the  normal 
n-latioii  to  (itht-r  wapw.  an  inerenMcil  i>ro|iortion  of  lahur- 
iTH  are  attractnl  into  it,  in  |ire,'freuct'  to  other  iHcijia. 
tionii  of  Mtmilar  uraile,  ami  wages  in  the  um|.l..ymeiit 
are  liroii;,'lit  down.  In  the  revermt  cam!,  laltorerN  week 
othtir  occuiiationH  hy  itreftrem e,  and  wages  in  the  given 
einploynieiit  riiio. 

In  order  to  Have  Nimre,  I  HJiall  assume  that  the  render 
can  Heo  for  hims.-jf  the  truth  of  the  foJlnwinK  pinpoHi. 
tioiiH  regirdiii},'  the  normal  level  of  individual  waKes: 

FirNt,  that  it  is  hi^'h  in  connnunities  where  the  spirit 
(»f  saving  is  strong',  and  where  the  product  of  imhtstry 
is  lurgo  in  proportion  to  the  iiuiiiIkt  of  luhorors.  If 
the  .spirit  (.f  .saving  he  weak,  or  if  the  produ(;t  he  rela- 
tively Hinall,  the  normal  level  of  wages  will  ho  low. 
Two  communitie.s  ecjual  in  producing  nqmcily  may  have 
uneciual  wages.  Again  normal  wages  may  he  eijunl  in 
two  communities,  notwithstanding  a  eon.sitleraldo  diller- 
eiicc  in  the  produetivenuhs  of  lahor. 

Secondly,  the  uormul  rate  of  wages  for  any  particular 


roliliad   I'Jroni'iiii/. 


.] 


kind  of  lalH.r,  is  ab..vo  tl.o  .on.inm,  Ic-vul  if  the  ^^nnc-nil 
iiia's  of  laLurcrs  be  hincU'Vod  in  any  way  in.ni  i>crf..iin- 
u,.r  tl.at  kind  (.f  lalH.r.  The  greater  the  obstacles,  the 
.-.eater  the  ine.iuality  in  wages.  Conversely,  if  the  rate 
of  wa-es  in  any  enil'loynient  bo  permanently  above  the 
conunon  level,  it  is  so  only  because  the  general  mass  ol 
laborers  are  hindered  from  entering  tlu.  employment. 

Thirdly,  so  far  as  freedom  of  competition  prevails 
between  employments,  ditferences  in  normal  wages  de- 
pend on  dill'erences  in  the  character  of  the  employments, 
us  viewed  by  the  laborers. 

Fourthly,  the  narrower  the  range  of  employments  open 
to  any  class  of  laborers,  the  lower  their  normal  wages 
will  be.  Converselv,  a  normal  rate  of  wages  below  tlie 
common  level  can  exist  only  for  laborers  whose  range 
of  competition  is  restricted. 

Fifthly,  a  rapid  increase  of  laborers  in  any  con.itry 
tends  to  depress  the  gciieral  level  of  wages.  It  keeps 
the  number  of  laborers  always  larger  in  proportion  to 
the  total  volume  of  savings  than  it  would  be  if  the 
increase  were  less  rapid.^ 

9  Wages  of  Non-productive  Laborer8.-It  is  necessary, 
before  leaving  the  subject  of  wages,  to  consider  briefly 
the  wages  of  non-productive  laborers.  The  services  of 
these  laborers  are  sought,  not  with  a  view  to  profit,  but 
for  the  sake  of  the  comfort,  improvement,  or  other  bene- 
fits they  confer  on  us.  Their  wages  are  therefore  drawn, 
1  There  is  au..ther  l.i.izl.ly  important  consequence  of  increa-sing 
number.s,  wl.ich  will  appear  iu  connecliou  with  ecouou.ic  rent. 


if  tho  ^jniieml 
i'loiii  ipcrftinu- 
i  obstrtcles,  tho 
<i;ly,  if  the  rttt(! 
L'litly  ahovu  the 
ceneral  mass  of 
t'liiiiloyineut. 
iL'tilion    i>revails 
iriiial  wages  de- 
le  eiui)lo}inents, 

iploynionts  open 
ir  lU'vnial  wages 
tvages  below  tlie 
ita  whose   range 

ill  any  conntvy 
ivages.  It  keeps 
ill  proportion  to 
would   he  if  the 

—  It  is  necessary, 
)  consider  brietly 
The  services  of 
iew  to  profit,  but 
lit,  or  other  bene- 
I  therefore  drawn, 

(luoiice  of  iiicriii.siiig 
1  ecououiic  reut 


Wai/cn  of  JViiH-proifiirlirr    LiiharirH. 


227 


lint  In. Ill  tlio  saviiig^i,  but  from  the  spetidings  of  the  com- 
niiiiiity.     This  is  a  highly  imi.oitant  fact  in  relation  to 
the  general  level  of  wag(!s.     It  means  tiiat  tiie  fund  fur 
)iaying  w.igcs  is  larger  tliaii  we  have  hitherto  assumed. 
Not,  however,  larger  by  the  full  amount  paid   for  non- 
produotivi'  servifos;  fcjr  it  is  to  be  oliserved  that  these 
services  are  in  part  paid  for  by  the  productive  lal)orers. 
Teachers,  ministers    of    religion,  physicians,  and    public 
servants  in  general  are  in  part   supported   by  tlie  con- 
tributions of  those  who  live  by  wages.     P.ut  tho  wealthy 
classes   use  non-productive  services   much    more   freely 
than  the  wage-earners.    They  spinid  much  in  tho  hire  of 
iioiisehold  .servants,  footmen,  coachmen,  companions,  etc. 
Wiiatever  amount   the    laboring   class   receive   in  these 
ways  is  a  clear  addition  to  the  wages  paid  from  savings. 
Or,  looking  at  the  case  from  another  point  of  view,  wc 
can  easily  see  that  tho  demand  for  these  non-productive 
services  keeps  a  considerable  rumlx'r  of  laborers  out  of 
the  competition  for  savings,  and  tliereliy  enables  tho  pro- 
ductive lalmrers  to  get  higher  wages  than  they  could  get 
if  tho  whole  body  of  laborers  were  tiirowii  for  emi)loy- 
nicnt  on  the  savings  offered  for  profitable  investment. 

Yet  it  is  cLar  that,  in  a  very  important  sense,  payments 
for  non-itroductive  services  are  not  so  beneficial  to  the 
laborers  as  the  oft'er  of  savings  would  be.  It  is  oidy 
better  for  them  that  tho  wealthy  classes,  if  they  are 
to  spend  instead  of  saving,  should  spend  in  hiring  ser- 
vices rather  than  in  buying  luxurious  commodities. 
What  is  spent   hi   commodities   is   entirely  lost  to   the 


I 


I 


■'ji 


-  >; 


it 


-J* 


228 


J'olitind  EroiioiDjl. 


Inlu.rL'is.    Wliiit  is  siKMit  in  hiring  s(!rviccs  the  Inbonsrs 
gi-t,  s<.  to  say.  a  siiigU-  u.st;  of,  aiul  tliuii  it  is  goiio.     Tht! 
kind  of  lal>or  thoy  give  in  return  leaves  no  i-rodnct  to  ki 
used  in  [wiying  them  for  further  lahors.     If  the  amount 
were  saved  and  used  in  hiring  them  to  proihice  useful 
commodities,  the   product  of   industry  would   presently 
be,  increased,  and  tin;  wages  of  lahorers  svould  be  raisetl. 
This  on  the  hypothesis  that  those  who  have  dispense*! 
with    personal    services,   persevere   in   the   saving   they 
have  begun.     Of  course  if  they  should   turn  out  to  1)C 
merely  changing  the  form  of  their  spending;  if  they  or 
other  wealthy  persons   should   increase  their   consump- 
tion of  good  things  to  the  extent  of  taking  up  all  that 
the  new  producers  add  to  the  product  of  industry,  wages 
would  not  be  raised  as  a  result  of  the  change. 

Or,  putting  the  same  case  in  a  diflerent  way,  body 
servants,  footmen,  etc.,  live  on  the  products  of  other 
men's  labor.  If,  for  the  wages  they  are  receiving,  they 
were  set  at  work  as  productive  laborers,  they  would 
presently  add  to  the  jiroduct  of  industry  enough  com- 
modities for  their  own  support,  with  a  surplus  over  as 
profit  for  their  employers.  What  they  now  consume, 
as  non-productive  members  of  the  community,  would  in 
that  case,  go  to  swell  the  wages  of  other  laborers,— 
provided,  of  course,  that  the  change  denotes  a  real 
increase  of  the  saving  spirit  in  the  community. 

If  all  non-productive  laborers  were  simply  discharged, 
their  present  employers  spending  in  increased  purchases 
of  commodities  what  they  now  pay  for  non-productive 


OS  till'  InlinnsrH 
t  is  yoiio.     Tilt! 
10  product  to  bo 
If  llie  amount 
produce  usolul 
.•ould   prcsoully 
k'Duld  1)0,  raised, 
havu  dispi'iise<l 
lie   saving   they 
turn  out  to  be 
Lling:  if  they  or 
their   consunip- 
dng  up  all  that 
industry,  wages 
change. 

jrent  way,  body 
oducts   of   other 
i  receiving,  they 
ers,  they  would 
:ry  enough  coin- 
surplus  over  as 
y  now  consume, 
n unity,  would  in 
ther   laborers, — 
denotes   a   real 
inmunity. 
imply  discharged, 
;rease<l  purchases 
ir  non-productive 


VafffH  n/  Xon-2)roduvtire  hi1>n,rrs. 


229 


services,  there  would  ho  a  serious   fall   of  wa-'cs 


„.  The 
mimher  ot  laborers  thrown  on  savings  for  their  wages 
would  be  increased  without  a  corresponding  increase  of 
savings.  The  ciise  woiij.l  be  similar  in  its  effects  to  the 
increa.se  of  laborers  spoken  of  in  the  first  section  of  this 
chapter. 

10.   Checks  on   Competition   in   Non-productive   Occupa- 
tions.  — Wages  of  nou-i,nHh.<'tive  labor  tend  to  conform 
iu  a  general  way  to  those  of  productive  labor,  (luantity 
for  (piantity,  so  far  as  competition  prevails  between  tiie 
two.i    15etwee.i  tiie  lower  forms  of  the  one  and  the  lower 
forms  of  the  other,  th.ne  is,  so  far  as  the  laborers  are  con- 
cerned, a  basis  for  freedom  of  competition;  also  between 
the  higher  grades  of  the  two.     The  most  important  limi- 
tation on  freedom  of  competition  e.vists  on  the  side  of  the 
employers.     In   hiring  non-productive  laborers,  the  em- 
ployer is  not  aiming  at  profit,  and  does  not  therefore  feel 
so  strongly  the  need  of  proceeding  on  strictly  "business" 
principles.     He  is  spending,  and  i„  spending  it  is  not   . 
dignified  to  higgle  over  trifles. 

Further,  the  employer  of  non-productive  laborers  has 
them  much  of  the  time  about  him.  His  personal  com- 
'  UoMi..|„l„.r,  once  more,  that  in  inpasurinR  (luantities  of  labor  we 
n.ustiake  tl...  judgment  of  the  laborers;  an.l  fliat  tbeii  judgment  has 
r-l,.ri.nce  to  the  whole  sacrifioo.  For  rxampio,  non-i-roductive  services 
are,  for  the  most  part,  lighter  in  the  mere  physical  exertion  they  call 
lor  than  productive  labor  is.  Hut  the  household  servant  has  less 
PiTsonal  freedom  than  the  productive  lab..rer;  an.l  this  difference 
.■auses  household  service  to  be  regarded  by  the  laborers  as  less  digni- 
li.'.l  than  productive  labor.  It  is  an  element  in  their  judgment  a.s  to 
the  quantity  of  labor  involved  iu  either  occupation. 


iii 


1 1 

'"k 


.■I 


230 


PoWical  Economy. 


f.,t  and  convcnionce  reuuir".  tUut  their  servieo  8huin.« 
..hecvful  una  willing.  This  it  c.uld  haraiy  he  .f  the) 
folt  that  their  sorviceH  were  i)..«.rly  imul 

For  these  reasons,  wages  of  househol.l  servants  ar.. 
l.i.her  than  they  wunhl  he  if  fully  .■ontrulle.l  hy  .nn.,- 
tit'ion.  It  is  not  op,.n  to  the  general  n.ass  ot  ..ther  lahor- 
..rs  to  come  in  an.l  do  the  san>e  serviee  h.r  h.wer  wages. 
The  masters  and  nnstresses  do  not  give  then,  the  chanee. 
The  di.rerence  in  wages,  however,  is  not  very  great 

Again,  no  man  drives  a  hard  hargain  w.th  Ins  doctor 
when  he  needs  medical  aid;  or  with  his  lawyer  when  he 
.ots  into  a  lawsnit.  The  services  which  i.rofessional  men 
lender  are  so  inrportant  that  we  fed  the  necessity  of 
getting  the  very  best  help  they  can  give  ns  I  he  ,my 
of  this  class  of  lahorers  is  therefore  not  wholly  under 
the  control  of  competition. 


I 


iiervieo  shall  Iw 
r,Uy  lit!   if  they 

1(1   scrviuits  art! 
oUotl  hy  cDiniH'- 
n  (if  (illicr  liiltDi"- 
for  lower  wages, 
lieiii  the  chance, 
i  very  gnsat. 
with  his  iloetor 
liiwyer  when  h-.; 
yirofessional  men 
the   necessity  of 
ve  ns.     The  pay 
lot  wholly  under 


CIIArTEIl  XX. 

FURTHER  CONSIDERATIONS  REOARDINO  WAGES. 

1.  Combinations  to  Fix  Wages.  —  No  discussion  of 
wages  Clin  lie  regarded  as  coniphste  which  fails  to  notice 
tlie  strong  tendency  towards  organi/ation  that  exists 
among  the  hired  laborers  of  our  time.  The  tendency 
is  not  new,  hut  in  recent  times  the  ell'orts  at  organiza- 
tion have  become  more  extended  than  formerly. 

The  lidjor  unions  have  more  than  one  object.  Largely 
they  are  a.ssociations  for  benevolent  jmrposes,  for  assist- 
ing members  who  are  out  of  emiiloyment,  for  relitiving 
families  that  are  left  destitute,  etc.  Much  good  ha.s 
been  accomplished  by  them  in  these  way.s. 

Commonly,  however,  the  as.sociations  have  shown  a 
tendency  to  intervene  in  ([uestio!is  of  wages.  The  mem- 
iters  seem  to  believe  that,  bj  acting  as  a  body,  the  labor- 
ers may  force  the  emidoyers  to  pay  higher  wages  than 
they  would  pay  if  left  to  themsel-.es. 

The  (juestion  is  one  of  great  practical  interest  both  to 
laborers  and  employers.  It  is  at  the  same  time,  I  think, 
a  much  bioader  and  deeper  question  than  the  leaders  of 
the  labor  unions  suppose.  A  full  discussion  of  it  would 
re(^uire  much  space,  since  it  touches,  in  one  way  or  an- 

231 


1  II 


t 

I 


232 


f\)lUintl  JSroiiDiiiif. 


nlli.r,  iiliunHLfV.T)  priiMMiMr  nf  pnlilinil  .r.iiiumy.  O'ily 
ill.'  (liit'l'  I't'iiilM  ran   I'f  tniidifil  nii   Imt.'. 

Tlll^    lIKisl  «.Ml.Till    I'nnil   nf   ill.'    .|lM-slin||    is  \vll(!Ul<T,  1.}' 

,.  ;r,.,i..r.il  ••uiMl.iimli.ni,  al.l.!  at  will  to  nr.l.-r  a  uniwisal 
slHkf,  thi'  liiivd  lalM.iviH  ..f  Ihc.  ciMmliy  <nnl.l  Hwrwd 
i„  nii'siii-  111.'  -.'lu'ial  Icv.'l  of  wa«.-H.  I'nliti.al  .•cmr.- 
mists  hoM  tlial  lli.-y  <'..uM  n..t;  Uk-  liil»"«'  nyitaloiH  mu'iii 
to  hold  that  Ihcy  (duld. 

2.  Strikes  Tend  to  Discourage  Saving.      Tho  general 
^rouii.l.s  of  th.'  aiisw.T  Kiv.'ii  by  th.-  (•.■oi.omistH  .an  1m, 
statftl  very  hri.'lly.      It  is  easily  denionstial.le  that  thts 
\va^;rs  of   i.r.Klii.live   lalmivis  arc,  drawn    from  .savinKH. 
an.?  that  tin-   total   volimi>'   of   waj^cs  .an   lui   iiK^rcawd 
only  hy  incUMiso  of  savin-^s.     Mow,  saving  is  a  volnntary 
act;  it  is  for  tlu!  most  part  an  a.t  of  [.rosviit  s.df-d.Miial. 
..r  sacrilico,  sul.mittcd  to  for  thi,  sake;  of  tho  future  -ain 
it  will  briuj,'.     Other  thinj^s  l.ein-^  e(iual,  the  greater  tiie 
l.rosiHMt  of  -ain,  th."  f^realer  ih.-  volume  of  saviiiKs  will 
1,,..     We  may  safely  assume,  in  any  given  VAm\  that  the 
t.)tal  volume  of  savings  is  already  as  great  as  tlar  eom- 
munity  is  willing  to  mak.;   it  for  the  existing  induee- 
ment.     Normal  wages  are  therefore  as  high  already  as 
the  situation  will  bear, 

A  general  slrik(!  might  sutM-.'e.l  in  g.'tting  tcMuporary 
inerea'^si!  of  pay  f..r  some  laborers.  The  trouble  would 
be  to  find  employment  for  all  at  the  advance.  Wages 
c.iuld  be  raised  at  any  time,  even  without  a  strike,  by 
inducing  a  portion  of  the  laborers  to  withdraw  from 
work ;  but  the  ri.sc  could   be  maintained  only  by  their 


-  •  .  i 


'* 


Ep.rtii  of  ShilfH. 


233 


niiiirny.     '>'<ly 

is  wli(!tlicr,  liy 
ItT  a  miivvrsiil 

citllM    .slirrt'cd 
'iilitiiill   t'Ciiiin- 


ayitalois  Hfciii 


-  Tlifi  K<'iit'riil 

lUlIlistH    lull    111! 
|]lll)ll!    tllllt    till! 

fidlll  .Siivillj^rt. 
II  Im!  iiKicasi'il 
;  JH  ii  voluntary 
H.'iit  SL'lf-di'iiial, 
(he  futuri'  j^ain 
till'  f^ri'atiT  till! 
(if  saviii^^s  will 
II  case,  that  the 
ent  as  tht!  ooiu- 
ixistiii},'  iiiduce- 
hiyh  already  as 

ttiiif,'  tf!nii»orary 
i  trmdili!  would 
Ivancc.  Wagi's 
imt  a  strike,  by 
withdraw  from 
d  only  by  their 


>-lii}iii;,'  out.     '|"h(.  whole  body  of  liiboriTH  Would  not,  |,h 

l"'lirtit,<'d    Iiy  sin  li    ;i    rise    of    WilJ»i'M. 

A  hi-^dii-r  !<'V<d  of  wa^e.s  nuild  Ik!  uiairitaitx-d  only 
I'V  an  iiMivaNrd  How  of  saving's,  j'.iit  if  wa;,'.'s  should 
Im'  raised,  |irotitH  Wfillld  be  lowered;  rhe  iiMbneiiieiit  to 
save  would  Iki  hiHH,  not  j^reater,  than  before;  savings 
would   therefore   fall  off  iiiMtead  of  imreasinj,'. 

The  eoni  Insion  si'enis  unavoidable  that  even  a  iitii- 
versal  strike  for  hij,dn)r  v.iige.s  niiiHt  fail  of  siiceesH.  It 
would  fail  just  as  an  atteni|)t  to  raise  all  prires  of  (^'oodn, 
without  an  inereased  sii|i|i|y  of  money,  would  fail.  There 
would  not  be  a  suHicient  Hupply  of  saviii<,'s  forlhffiiiiiiij,' 
t/>  make  the  inereased  wagcH  possilde.  The  doctrine  of 
tlie  lalior  unions  requires  us  to  believe  that  lin'ii  would 
save  inori!  for  a  less  iiidiueiMent  than  for  a  greater.  It  is 
therefore  contrary  to  the  fundamental  iiritKMple  of  wages. 

The  only  way  by  which  the  laborers  can  make  sure 
of  raising  their  wages  is  dearly  by  adding  all  they  can  to 
the  produetiveiiess  of  their  lalior.  I'.y  greater  diligence, 
better  <are  of  machinery  and  materials,  more  disposition 
to  turn  everything  to  the  best  account  for  their  employ- 
ers, they  would  incri^isf!  very  much  thi;  value  of  their 
services;  the  product  of  industry  would  becomt;  greater; 
both  the  means  of  saving  and  the  inducement  to  save 
would  he  increased.  That  the  speedy  result  would  be 
an  ill  reused  demand  for  labor  and  a  general  rise  of  wa"es 
does  not  admit  of  a  doubt. 

Strikes,  with  their  attendant  interruption  of  industry, 
with  the  disorders,  violence,  and  destruction  of  projierty 


I 

1 


! 

I 


1^ 


;  O'. 


2.14 


Jbliliciil  Kcommy. 


th.it  m)  comiuciily  grow  «)ut  of  thi'iii.  are  poor  iiHoutivt'H 
to  In.lucu  i-i'opU)  to  Miivo  their  iiu;r)iii»!  with  ii  view  to 
investing  '"  i'»'*ii>«'!^'<  oiitcrpriHi's.  Till  the  lal.on>rs  iin^ 
willing  to  Huvi)  til.'  m.'iiiiM  of  pros  i.liiig  ntpilal  of  tli.'ir 
own.  it  is  rlfarly  tlu-ir  intcivHt  to  do  nothing  that  t.-n.ls 
to  click  llu!  Having  spirit  in  oth.-rH. 

3.  Futility  of  Strikei  In  Practice.  —  Tlu^  coniinon 
result  of  Htrikt's  against  iuiliviilual  i-mploycrs  shows 
plainly  enough  the  weak  point  in  the  thc-ory  that  strikes 
may  raise  the  general  level  of  wages.  Coinmonly  tho 
strikers  fail,  hecause  it  usually  turns  out  that  there  aro 
nianv  other  lahorers  who.  having  either  no  eniph.ynient 
or  po.)n-r  pay  than  the  strikers,  are  glad  to  neeept  the 
terms  these  have  rojeetod.  The  few  lases  in  which  this 
is  not  true,  in  which  therefore!  strikes  suceeed,  are  cases 
in  which  a  rise  of  wages  is  on  the  eve  of  coming  about, 
without  a  strike,  l.y  the  action  (.f  supply  and  demand. 

A  strike  for  advance  of  pay  in  any  industry,  if  made 
when  business  is  improving  or  has  improved,  may  hasten 
the  rise  of  wages.  Strikes  against  reduction  of  wages 
nearly  always  fail.  They  come  at  a  time  when  employ- 
ers nmy  have  little  or  nothing  to  gain  by  g(.ing  (.n  with 
■production,  even  at  the  reduced  wages.  A  stoppage  of 
work  for  a  while  may  be  a  welcome  relief  to  the  em- 
ployers at  such  a  time.  A  strike,  in  these  circum- 
stanees,  is  sure  to  fail.  In  no  case  is  it  sure  to  succeed. 
There  can  be  no  d-.ubt.  looking  at  the  history  of  strikes 
in  general,  that  they  have  been  on  the  whole  a  source 
of  great  loss  to  the  laborers. 


jMMir  inc«iitivt!H 
with  II  view  to 
Lh»!  liil'ort'is  nit^ 

cniiilal  of  tlit'ir 
liiiiy  that  U'lnh 

—  Tho  coinmon 
iiiiphiycra  nhows 
L'oiy  that  Htriktirt 

CoiuiiKHily  tho 
t  that  thi'ie  iiro 

no  iMiiployiiit'iit 
id  to  ai'CDjtt  the 
ics  ill  which  this 
ncc'i'i'd,  ore  cnsi's 
jf  cdiuiii};  nbniit, 
y  and  doiiiand. 
industry,  if  niadi! 
Dved,  may  hasten 
Uiction  of  wages 
lie  when  eniph>y- 
by  g<»iii|^  on  with 
.     A  stiipjiayo  of 
relief    to  the  eiii- 
iii   these   circuni- 
t  sure  to  succeed, 
history  of  strikes 
lU  whole  a  source 


-miiammi' 


KfftcU  nf  Striken. 


286 


Oni'  flit  titer  n-Meetinn  M  to  Ntrilxes  is,  that  they  imj 
never  directed  n^ainst  tlie  ntost  olivioiis  ntnircc  of  low 
wages.  'I  he  real  wages  of  jahorers  de|N'nd  lis  titnch  on 
the  prices  of  l\w  tilings  they  htiy,  as  on  the  anionnt  of 
money  they  receive  from  their  em|iloyers.  The  gnnt 
loss  of  real  wages  comes  in  the  dill'ercnce  iM-tween  tht* 
prices  the  jirudtieing  employers  get  from  the  traders  and 
tho  prices  wo  nil  have  to  pay  at  ri't;dl.  Kveit  if  tho 
direct  employers  of  the  great  nia.ss  of  lalKirers  shonM 
rai.se  wages  to  the  lutint  of  foregoing  all  tiicir  prolit, 
the  dill'erem'e  in  wages  would  In,-  slight.  On  the  other 
hand,  if  the  co,»:t  and  risks  of  making  tite  exchangt!  of 
products  could  Ite  reduced  one  half,  the  gain  in  real 
wnges  would  ho  great.  Tho  estaldishniciti  of  co-opcr- 
ntivo  stores  by  the  laborers  in  England  was,  therefore, 
n  move  in  the  right  direction.  It  has  proved  a  great 
success.  If  our  American  laborei's  would  Imt  devote  to 
a  similar  plan  n  part  of  the  energy  and  money  they 
have  wasted  and  still  waste  in  strikes,  there  can  1m>  no 
doubt  of  their  opiKtrtunity  to  raise  very  materially  their 
real  wages  thereby. 

4.  High  Profits  Favorable  to  High  Wages.  —  Tt  may 
.seem  to  .some  that  this  puts  juditical  economy  on  the 
side  of  the  capitalists  in  the  struggle  about  wages. 
'I'ltat  is  not  the  case.  p]i;ononiists  have  always  sym- 
pathized deejjly  with  every  feasible  plan  for  improving 
the  lot  of  those  who  work  for  wages.  They  have 
always  denounced  all  harsh  and  unfair  treatment  of 
laborers.      But   they   cannot  allow   their   sympathy  to 


;i 


^ 


it 


'•1 1 


A 


•4 


230 


I^)Hlii'nl  Kmnnntf/, 


hliiiil  llu'iii  I"  iIk'  fuftH  uf  tho  cnn«.  Tlu'y  m-o  wlml 
thi>  lalxir  ngitnturM  t(to  nftoii  fall  to  boo,  imiiuily,  tlmt 
iH-npIi)  cimimt  Itf  nMjrcuil  into  Huviiij,'.  iMirtlifr,  tl.f 
••(•(momiHt  (1<M'H  not  look  with  j<'iilou»y  on  tht  iirolits 
of  .•iniiloviTH,  for  lit!  knows  tlmt  tli.!  liigluT  iirolitM  luv. 
th.'  licttt-r  hope  tliiTt!  i>  for  tlm  liibortTn.  Hti  i<no\vH  that 
hi;^li  profits  lo-tlay  aru  'ho  hiwt  ground  for  uXMMCting  hiyh 
wiigi'H  to-niorrow. 

W'lmt  thi)  liihoriTM  foil  to  get  of  tho  product  ()f  iiv- 
diiatry.  is  ntt  what  tho  « niployi-rs  gain,  htit  what  thoy 
ootiHiiine.  So  f/.r  as  profits  an;  savt-d,  tlu-y  lto«;oniij  wagos. 
The  profits  of  to-tliiy  arc  not  high  at  llu;  oxponsi!  of  the 
wagos  i.f  to-day,  thi-y  aro  high  at  tho  cxpunso  of  past 
wngos,  whi<h  aro  now  heyond  the  nmch  of  change  hy 
Rtriko  or  otlu-r  nimins.  Instead,  theri'fon',  of  futtting 
ovor  tho  high  profit  of  capital,  Itihorers  ought  to  rejoico 
ir  it.  Tho  thing  tfioy  liavo  some  reason  to  grudge  is 
tho  lavish  oxpoudituro  of  the  capitalist  «'lass.  Thoir 
loss  is  not  what  tho  capitalists  gain,  but  what  thoy 
spend.  This  is  so  important  a  jtri'iciple  and  so  contrary 
to  popular  thoorioa  that  wo  shall  do  well  to  considur  it 

fully, 
5.  Do  we   Help   the   Laborer!  by   Buyiagf    Ooo<l<i1  — 

The-"  is  a  wido-sproad  holiof  that  whoovor  Iniys  goods 
of  tho  niorchaiits  holps  tl;o  laborers.  Those  who,  hav- 
ing the  ability  to  spend  freely,  choose  to  live  econonii- 
cally  are  coinniiaily  regarded  as  churlish  and  unfriendly 
to  those  who  live  by  wages.  On  the  other  hand,  those 
who  are  lavish  in  buying  luxuries  for  themstdves  are 


r 


Tlu'}'  M-e   what 

le,  immcly,  llmt 

rurtlicr,  tlif 

oil  tlu;  iirolifs 
gluT  iiffifitM  art'. 

lit)  kiiKWH  that 
r  cx'wctiiig  high 

product  ()f  in- 
I  but  whnt  tlii'y 
ly  IrtHioiutJ  wiigt'n. 
!  oxjionso  ol'  tho 
oxiMiUHO  of  past 
■h  of  dmugo  by 
fort',  of  fiitttiiig 

ought  to  rt^joico 
on  to  gruilgt!  is 
iHt  tMnsH.     Thfir 

but  what   thtiy 

and  8o  contrary 
;U  to  cousidur  it 

luying    Ooousl  — 

H'WT  buys  gotjils 
Those  who,  liav- 
to  live  econoini- 
h  and  UTifriendly 
)ther  hand,  those 
r  thomstdves  are 


JkmflHil /or  (JilOih  tint  ft   fifmi'ilif  /ill-    !.nlmt\    'l'^^ 

*Aiv\\  Mpukt'ii  of  an  bcricfartttrs  of  tho  iaborfrs.  Thfir 
imndinsim  ur«  HiipiMiscd  tti  cmutu  u  tluiuaud  for  lab..r 
ami  to  pMuioto  high  \liig('H. 

Thin  ia  oiiu  of  thu  many  [Hipular  itli-aH  whirh  poliiital 
«'«tMioiuy  has  to  ri'ji'ft  ami  ri'fuli'.  It  is  i!.»t  truf,  thoh>;l» 
it  Itiolis  trill'.  Atiybiidy  whn  tliiiiUs  van't'iilly  aliout  tlio 
nuittur  for  u  Htilo  wiiiUi  ought  to  bn  ablu  to  (!\|iomi 
tht!  fallaty.  Obsfrvo  that  thu  ([UCHtiou  Is,  at  bottom, 
whtither  it  if*  bi'ttti  for  th«  labon-rs  that  you  Hhniild 
sjioml  your  money  in  gi'ltiiig  cnjoyabU'  tlnngs  for  your- 
81'lf.  or  ulioultl  turn  it  over  to  tlii'm  to  Hjiend.  If  you 
Huvt'  and  iavt'st  it  in  any  form,  it  is  sun)  in  tlm  I'ud 
to  reach  the  laborers  as  wiiges.  Kven  if  you  meri'ly 
[lilt  it  in  a  savings'  bunk,  the  bank  lemls  it  to  somo 
business  man  in  whose  Immls  it  soon  becomes  wages. 
The  result  will  be  that  your  savmg  adds  just  so  mm  li 
to  the  amount  the  laborers  rocoivo  for  their  work. 

Perhajis  the  imsiest  way  of  jterceiving  the  error  of 
the  p-ipular  theory  is  to  eoi..^ider  it  in  conncrtion  with 
till)  circulation  of  money.  LiHikiiig  again  at  the  lUagram 
on  img.i  134,  it  ought  to  bo  easy  to  see  that  the  greater 
the  amount  returning  to  1  through  a,  d,  g,  J,  and  q,  thu 
less  there  is  left  to  jtas3  through  tiio  chaiimds  for  wages, 
h,  r,  h,  I,  and  o.  In  (jther  v/ord.s,  the  mort;  the  .veaUhy 
(lasses  spend  in  buying  connuodities  for  their  own  con- 
sumption, the  lovvi-r  the  wages  of  the  laborers  will  be. 

The  laborers  get,  not  what  is  siK'ut,  but  what  is  ..ived. 
Those  who  hold  that  the  nu^rc  purehase  of  products 
of  labor  helps  the   laborers,  forget  to  ask  what  would 


Si 


II 


n 

i 


2»8 


iStlUiml   Hionoiinj 


]\n\i\>t<M  If  fwrylMMly  »>U'i\  on  that  j.rinripl.t.  If,  for 
exaiiiplf,  till-  iiii'K  liiiiitN  lui.l  llif  iimiiiil'iK  tutiTH,  iiiHtfinl 
of  liiriiiK  liilior.'r«*  willi  lli«'  moiu-y  we  i-uy  thum  f..r  tlifir 
y..oilH,  Hliniilil  lit  OIK-..  HjK-iia  It  III  »>uylii«  thIliKH  lot 
tlmir  own  t'lijnyiii.'iit.  wht-n;  wuiil.l  tlu'  n.lvuiitiiKt'  to  thu 
lulM.ri'rM  com.'  in  f  It  in  «Mily  by  tnkiiiK  fur  Knmt.'.l  tliat 
111.'  l»UHiii.'«H  iiii'ii  will  ilo  what  w.'  liav.'  n..t  <l<'n.'.~ 
will  Muvi!  what  tlicy  www*'  ami  liin-  lalidiurs  with 
it,— tliiit  aiiylxHly  «oul.l  lu.l.l  tli"  .Itutrinu  for  n  iiio- 
hit'iit.  l»iit  if  miviiiit  on  lh.«  pail  of  I.UHincHH  hum,  \»' 
j{...).l  iiiul  uvun  iii'ci'HMary  for  tli.'  laliort-rH,  why  hln.ul.l 
il  \h>  K'hs  buiu'ruial  wIh'II  ll^a^ti^'.Ml  liy  otliofM  ? 

6.  The  Argument  from  the  Need  of  a  Market.  To 
\\w  tiu.'.Htiuii  jiisl  ask.tl,  111.'  adv.M.ilf  of  the  tiinf-w..ni 
falla.y  UHually  ivj.li.'H  by  uiKin;;  tli«  ii«oe«Hity  of  a 
mark.  t.  I'lifHy  Hlateil.  his  rtrHnnu'iit  is  thnt  "If  n.iboily 
bought  thin«H.  tlu'iv  w.tnld  bi'  no  .all  for  labor  to  make 
thiiiKM."  TluH  niny  bo  freely  atlniitled,  but  it  huH  nu 
bi'arin}^  on  the  crso. 

Tlu!  .lUOHtion  iH  not  whcth.'r  them  arc  to  be  any 
l.uyers  or  no.  bnt  Win.  are  t..  be  tl;.!  buyers?  Wli.'n 
hired  hibontis  8i>.'nd  their  wa^es,  they  are  buyers  (jnile 
as  truly  as  any  other  elass.  In  saving  money,  wo  simply 
transfer  bnyint,'  power  to  those  who  Uvi.  by  wages.  The 
.inestion.  therefore,  is  simply  Who  shall  have  the  priv- 
ih.g.'  ..f  laiying?  Wh<«(!ver  has  that,  eonstitnU's  the 
mirrk.'l.  The  higher  wages  are,  tlu-  greater  is  the  market 
..tl'.'r.'.l  by  th.'  laborers.  Kven  if  all  inroine  could  1h! 
Buved  and  paid  lov  hhox,  it  would  only  umount  to  niuk- 


niM«iii  imnm^r^'^ 


irlpln.  If,  f'lr 
tiiriTH,  iiiMl«'ii(l 
tlioin  for  tli«.'ir 

Ivuiitiij^t'  to  thf 
fur  Krniitt'tl  tlint 
»'  not  ilonc, — 
lalioturs  with 
riiui  for  n  uio- 

IHilH'NH     IIIIMi     l)«> 

m,  why  Mh«iuKl 

)tht'rN  i 

a  Market.  -  To 
ilnj  tiiiH'-worii 
iiiMit'HHity   of  u 

thrtt  "If  uoliody 

r  hibor  to  make 
but  it   hiiH  Mil 

lire  to  he  imy 
Imycrs  ?  Whi'u 
ire  huyors  (jiiilt! 
oiioy,  wo  «imi>ly 

by  wngi'H.  The 
I  have  the  \<t'i\- 

eonstitutes  the 
:er  is  the  iimrket 
ncotiic  couUl  1m! 
umouiit  to  inuk- 


Snvimj  iiif»  nut   /,«•«*«   Ptimnnf  /or  UihhIh,      *j.'lO 


iii)(   tiie    iahururii  u  iinirkel    for    thi<    who|i>    |ir<Hhi(  i    rif 
iiuliiMiry. 

Ah  to  the  call  for  labor,  there  woiiM  bo  the  4iitiie  ihumI 
of  labor  to  make  ihiiip  for  workiiiy  iiieii  iiimI  their 
raiiiiliit  iliai  there  ih  lu  iimke  thinK**  for  the  wealthier 
I  la-HsfM.  The  iin-rim'  thin(,'M  (..  bi.  tiuitlt'  woiilil  no  dotibi 
be  (litl'erent;  but  lliat  \\(»iiltl  Im'  Jiicrely  a  <nii'MtiiMi  of 
the  8ort  of  itriHliii'ijiMi  to  be  carried  on,  not  n  iiuettiori 
whether  any  Hurt  of  |iriMluetion  wonhl  be  iii'cdi'tl. 

7.  Inoreaie  of  Saving  doei  not  Leiaen  the  Total  Demand 
for  Commoditiei.  —The  fact  that  the  coniinodiiifs  laborern 
liiiy  with  thi'ir  money  are  not  the  same  that  tlie  \h>v^k\\\ 
wlio  Nave."  the  money  would  have  Imn^dit,  makes  it  easy 
to  fall  into  a  wrong  view  of  the  clVi-ct  of  .•.avinjr.  When 
perMons  who  have  been  ateustonied  to  B|ieml  freely 
abamlon  their  extravagant  habits,  Wf  are  apt  to  think 
of  the  fthopkecpors  with  their  utocks  of  cigars,  wiiip«, 
silks,  and  laics.  We  Hct!  that  nntil  they  hcH  these,  they 
will  not  order  a  fresh  supply  ;  and  so  the  mannfacturerM 
may  not  venture  to  produce  further  wtock.s.  Wlicn  the 
laiyers  appear,  they  Hoeni  to  m-t  the  wludo  prodnctivo 
maehinery  in  operation,  ami  thus  to  cmito  tho  occasion 
for  tho  hirinjj  of  laborora. 

Hut  to  look  at  th(!  matter  in  this  way  is  to  omit  the 
most  important   feature  (»f  the    case.     Wines  and   laces 

are  produced  only  1 aiise  there   is  a  demand  for  tbcsm. 

Had  people  always  saved  their  money  instead  of  speiul- 
iu},'  it  in  buying  lu.xurious  articles,  such  articles  would 
not  luivo  been  on  the  hands  of  the  merchants  awaiting 


I 


If 


.^ 


I 


if 


2m 


I'lih'firiif    fCroiiiiiiii/. 


Imyns.      II'  I I'll'  sliniiM  sinlilt'iily  )^ivf  up  Imyiti^  wines 

jiMtl  silks,  III'  luiiisr  till'  iiiiimifin'liiicrs  iiml  iimtiIhiiiI.s 
ini;;lit  lo-i'  II  liiv^i'  ii;m,  i.l'  lln'  snviii^s  tlii-y  liiivi-  iii- 
Vi'sti'il  ill  Itif  l>inillirliii|l  illlil  sille  III'  llicsc  nilllllMKJil.it'H. 
r.iil  li'(  IIS  siili|Hisi'  till'  rliiin;^!'  (i)  lit'  fiili'sci'ii,  nr  «'Vi'ii  to 
111-  <,Miii|ii;iI,  s(»  I  hat  the  )i|ii(liin'rs  iiiiil  dciiliTS  limy  hiive 
time  In  withdraw  frmii  the  Imsiiiess  in  time,  in  that, 
case  they  wnnM  still  have  their  savinj,'s,  and  wuiild 
still  wish  1(1  use  them  so  as  to  make  |ii(ilil.  They 
wniild,  iheiefiire,  ((inliiuK^  to  cmidny  as  many  lahnreis 
as  he  fore,  — merely  ehan;,'in^;  the  preeise  mmle  of  (Mii- 
ployin^'  them.  On  their  part,  then,  the;  payment  of 
wa^es   would   not  li(>  lessened.' 

Attending,'  now  to  those,  who  save  tho  nmount  ]»r(!vi- 
onsly  expended  in  the  purchase  of  luxuries,  there  ouj^ht 
to  be  no  ditliculty  in  sec!in«,'  that  all  they  .save  and  invest 
is  a  clear  addition  to  the  Wiii,'e.s  of  labor.  If  anybody 
doubts  the  exislinice  of  u  market  under  these;  conditions, 
for  all  that  the  laborers  could  product!,  h't  him  consider 
the  case  from  the  side  of  the  laborers.  Why  do  they 
labor  /  Is  not  tlu!  nicn;  fact  of  their  workinjf  for  wajjcs 
a  proof  that  they  desire  products  of  iiuln.stry  ?     TIk;  only 

I  Soino  loss  (if  tixcil  c:\\nV.\\  wmild  lie  liki'ly  to  nUonil  the  clmnfjf ; 
))iu  till'  opiHisito  clmiif,'!^  (Unit  is,  a  (Iccrcii.se  of  Havlii},'  anil  a  fall  of 
wiiiiis)  w.mltl  involve  a  siiniliir  loss.  Sucli  losses  attend  every  eliange 
of  fasliion,  ami  even  every  imiiroveinenl  in  produetion.  This  is  one  of 
th'j  risks  (hat  iiroducers  have  to  run.  'I'hc  ilan.^'er  tends,  no  doubt, 
to  diseouniKc  .s:iviiij;,  and  so  tends  to  depress  wajies.  The  ordinary 
I'xpeetation  of  prolii  niusi,  in  other  words,  lie  hii;h  enoiii^h,  after 
allowiiii;  for  these  losses,  to  inductj  meu  to  save  and  invest. 


llnir    Moiivii    I'liiii jil liiili >i   f./f    ('iiAf, 


211 


ii|i  liiiyiii^  wiin^s 
s  iiml  liii'|('li;iiil,s 
^M  tlicy  liiivi^  iii- 
icsc    rolllllHMlilit'H. 

Tsci'ii,  or  I'Vi'ii  1,11 
ilciilcrs  limy  liiivn 
II  liiiii>.  Ill  tliiit, 
'iiij,'s,  and  wuiild 
ikc  |irnlii.  Tlii'y 
IS  iiiaiiy  liilioicis 
is*!  iiHMlt!  of  cm- 
tilt!    iiiiyiiM'iit    •.•!' 

\h\  .'iiiiouiit  ]ir(!vi- 
iirics,  tliciv  ouj^lit 
y  .siiv(!  and  invci.st 
lior.  If  iiiiyl)f)dy 
■  llics(!  conditions, 
,  \vl  him  considor 
s.  Why  do  th(!y 
vorkinj,'  for  wajjcs 
U8tiy  ?     Tho  only 

to  attend  the  clinnu'i' ; 

Hiiviii;;  ami  a  fall  of 

s  atti'iul  every  eliange 

K'ticin.      'i'ilis  is  QIK!  of 

liner  temls,  no  doubt, 
wa.u'es.  The  ordinary 
le  liii;li  eiiou,L;li,  after 
vu  and  invest. 


|iossihI<'  doiilit,  ill  I  hi-  <-!\^i-  would  li",  Wiifit.  parliciilar 
products  <lo  th<'y  desire  as  llnir  incn-asf  of  \vat,'CM  ^ 
Whatever  these  |)roiiiiet,s,  the  increase  of  demand  would 
rail  forth  an  iii'Tcased  |irodiictio!i  of  them  Kven  if  they 
wished  only  money  to  lay  hy  for  fiitiiie  use,  inoney  is 
a  product  rif  lahor.  Such  a  demand  woiiM  sim|dy  raise 
the  value  of  money,  and  divert  an  increased  aiiionnt  o| 
iiilior  into  the  production  of  j^idd  and  silver. 

Tho  whole  result,  then,  of  increased  savin;,'  is  to  raise 
wa;,'eM,  to  diminish  the;  demand  for  certain  articles  and 
to  increase;,  to  tho  saiiK;  precise  extent,  the  deiuand  foi' 
certain  otlntr  articles. 

8.  Obscuring  Effect  of  the  Use  of  Money.  We  have 
seen  ulntady  how  much  the  use  of  money  ohseures  tin; 
true  nature  f)f  huyin^f  and  .selling,'.  We  now  see  that  it 
has  the  .sam*;  (dl'ect  on  the  payment  of  wa;;es.  If  em- 
ploy<!r,s  wero  accustomed  to  pay  their  lahorers  in  actual 
coiiimoditi(!.s,  I  think  that  the  error  we  are  con.sideriny 
would  never  have  ari.sen.  Nohndy  could  then  fail  to  .see 
the  iihsurdity  of  sujipo.sin;,'  that  the  rirh  help  the  poor 
liy  lavish  consumption  of  commodities,  and  injure  them 
hy  savin;;  as  much  a.s  possihle  for  investment.  Every- 
hoily  would  perceive  that  the  wages  of  tho.se  who  work 
for  hire  consist  precisely,  not  of  what  other  men  consume, 
liut  of  what  other  men  do  not  consume. 

The  u.se  of  money  brings  the  payment  of  wages  into 
'lo.se  connection  with  the  exchange  of  commodities.  It 
separates  the  receipt  of  wages  into  two  acts :  first,  the 
receipt  of  the  money  from  the  employer,  and  secondly. 


:■■.,;■« 


'M 


2i2 


Polilical  Economy. 


the  ijurchasi)  of  cuinmoilitics  with  i\w  ini)uey.  Tlut 
second  of  these  acts  has  nutliiiig  in  it,  at  least  on  the 
surface,  to  distinguish  it  from  othitr  purchases  of  goods. 
Yet  in  a  very  important  sense  it  is  tht;  true  payment  of 
\va"es.  Tlie  amount  of  money  received  for  a  day's 
win-k  is  a  matter  of  small  conseciuence  in  itself;  the 
real  (juestion  of  wages  is  how  great  a  (quantity  of  needful 
commodities  a  man  can  obtain  for  his  labor. 

Further,  as  we  have  seen  in  a  previous  chajitc^r,  this 
connection  between  payment  of  wages  and  the  sale  of 
goods,  makes  it  easy  to  mistake  the  real  niiture  of  th(! 
troidile,  when,  for  any  reason,  there  is  a  falling  oil'  in 
the  investment  of  savings.     Tlie  obvious  thing,  at  such 
a  time,  is  the  decrease  in  the  sales  of  goods.     The  accu- 
mulation of  unuivested  .savings  in  the  hands  of  bankers 
and  others,  is  either  not  noticed,  or  is  regarded  as  a  mere 
conseipuMice  of  the  failing  demand  for  goods.     In   this 
way,  unthinking  persons  are  coidirmed  in  the  erroneous 
opinion  that  when  we  buy  commodities  for  our  own  use 
we  give   employment  to  laborers.     If   they  retiected  at 
all,  they  could  hardly  fail  to  see  that  the  commodities 
which  do  not  sell  are  in  fact  awaiting  use  in  the  pay- 
ment of  real  wages;   and  that,  but  for  the  presence  of 
money,  these  commodities  would  appear  as  savings  in 
the   hands  of  the  employers,  rather  than  as  luisalable 
goods  in  the  shops. 

9.  "Wages  an  Advance.  —  The  question  we  are  consid- 
eriii"  o'oes  to  the  foundations  of  pcditical  economy.  A 
whole   group   of   important   practical   questions   depend 


ic.  iiitiiiey.  Till! 
,,  at  least  oil  tho 
ii'cha.sL's  of  goods. 

Iruu  i)a)iiieiit  of 
ivi'd  for  a  day's 
vA'.  ill  ilst'lf;  lliu 
laiitity  of  needful 

lalxjr. 
ions  cliaiitcr,  this 
;  and  tho  sale  of 
eal  nature  of  the 
s  a  falling  oil'  in 
Ills  thing,  at  such 
,M)uds.  The  accii- 
hands  of  hankers 
egarded  as  a  iiicni 
r  goods.     In   this 

ill  the  erroneous 
3  for  our  own  use 

they  reflected  at 
.  the  coniniodities 
5  use  in  the  |)ay- 
ir  the  presence  of 
ear  as  savings  in 
than  as  unsalable 

on  we  are  consid- 
ical  economy.  A 
(|uestions   depend 


Wages  an  Adranrr. 


243 


'ipoii  the  answer  we  give  to  this  mic.  It  may  therefore 
he  well  to  consitier  the  matter  from  another  point  of 
view. 

Tlie  fundamental  reason  why  demand  for  commodities 
is  not  a  deiiiiind  for  lahor,  is  found  in  the  fiu.'t  that  the 
lU'odiictioii  and  exchange  of  liiiished  commodities  nMjuiics 
so  much  time.  If  every  commodity  could  lie  produci'd  in 
a  day,  or  a  wec'k,  and  could  he  immediately  exchanged 
for  such  things  as  the  producer  hajipened  to  desire,  there 
woull  he  no  cswutial  dilference  between  paying  a  man 
wages  and  hnyiiig  his  ju-oduct.  There  are,  in  fact,  u 
few  cases  in  which  the  imrchase  of  tlu;  product  answers 
the  same  purpose  as  tho  direct  hiring  of  the  laborer 
would  .servo. 

If,  for  e.xamph;,  at  the  proper  season,  one  should  offer 
to  buy  wild  llowers,or  berries,  or  autumn  leaves,  or  shells 
from  the  beach,  or  any  other  thing  that  can  be  ob- 
tained without  much  previous  labor,  the  otl'er  would 
be  as  good  for  the  ccnmtiy  boy  as  the  offer  of  wages 
would  be.     It  would  be  a  demand  for  his  labcjr. 

But  very  different  is  the  offer  to  buy  a  suit  of  clothes 
from  a  journeyiaan  tailor  who  is  looking  for  employment; 
or  a  car-load  of  potatoes  from  a  farm  laborer  in  the  like 
case;  or  a  house  from  a  carpenter  who  is  out  of  work; 
or  a  ndl  of  cott<jn  cloth  from  a  mill  operative;  or  a  ton 
of  coal  from  a  coal  miner,  etc. 

A  little  careful  thinkiii-  about  the.se  two  sets  of  cases 
will  make  clear  the  reason  why,  in  civilized  industry,  the 
offer  to  buy  goods  does  not  give  employment  to  needy 


1 


1, 


.r 


j'vl' 


fi4 


/f 


244 


J'olitiral  Economy. 


laborers.     I'r.Kluction  takes  too  long  to  make  the  ofler  of 
any  service  to  tlieiii. 

In  eousidcrint,'  the  matter  the  student  must  take  enro 
to  iuclude  the  whole  case.  The  production  of  each  com- 
modity must  he  viewed  as  a  wh.de  All  the  labor  of 
preparing  the  natural  agents,  of  raising  or  procuring  th.; 
materials,  and  of  making  the  re(misiU!  machiiu^ry,  nnist 
be  included  in  the  labor  of  producing  th.!  enjoyable  com- 
modity which  linally  results  from  tiiem.  Tiiis  point  is 
of  great  importance  in  the  study  of  wages.  It  Is  the 
simple  fact  that  labor  spent  in  getting  ready  to  produce 
good  things,  has  itself  no  immediate  result  that  is  good 
to  eat  or  to  drink  or  to  wear. 

Tliough  machinery  and  materials  are  bought  and  sold; 
and  th.mgh,  on  the  surface,  there  is  nothing  to  distin- 
guish such  sales  from  the  sale  of  enjoyable  commodities 
to  consumers,  yet  a  little  reflection  shows  us  that  there 
is  a  very  wide  diirerence.  In  sales  of  the  latter  kind,  the 
l)archaser  is  taking  his  reward  for  labor  or  waiting.  In 
the  purchase  of  materials  or  machinery  he  is  investing 


savnigs 


If  men  receive  any  immediate  return  for  labor  spent 
in  providing  the  capital  used  in  production,  it  must  come 
from  the  saved  products  of  other  labor.  No  matter  in 
what  form,  or  under  what  name  the  return  is  obtained, 
it  is  in  the  nature  of  an  advance  out  c)f  savings. 

For  example,  an  agreement  to  buy  of  the  laborers,  at 
the  end  of  each  day  or  each  week,  the  unfinished  results 
of  their  work  up  to  that  point,  would  not  differ  in  prin- 


Ik.. 


iiiako  the  ofVer  of 

lit  iinist  tak(5  mm 
•tioii  of  each  citiii- 

All  the  laltor  of 
r  or  iirocurinj^  the 
!  iiiacliiiiory,  must 
h(!  eiijoyalile  coiii- 
lu.     This  jioiiit  is 

\vag(!S,  It  Is  the 
;  ready  to  produce 
•esult  that  is  good 

»  honght  and  sold; 
nothing  to  distin- 
yaVilc  coiuniodities 
lows  UH  that  there 
the  latter  kind,  the 
lor  or  waiting.  In 
:ry  ho  is  investing 

rn  for  labor  spent 
ction,  it  must  come 
)or.  No  matter  in 
return  is  obtained, 
X  of  savings. 

of  the  laborers,  at 
I  unfinished  results 

not  differ  in  prin- 


Extent  to  which   Wages  are  Admuccd. 


245 


(•i|ile  from  an  agreement  to  pay  them  wages.  No  num 
could  do  I'iilu'r  without  a  fund  of  savings  to  be  used  for 
tiie  purposi'.  He  could  not  use;  tlie  very  things  pro- 
(hiicd  by  tlie  laborers  themselves,  until  they  had  got  by 
the  work  of  creating  capital,  and  had  I)cg\ni  to  turn  out 
true  commodiLics.  All  tlit!  linislied  commodities  received 
by  tiio  workmen  for  tiieir  lalior  up  to  that  point  are 
advanced  to  them  out  of  the  saved  products  of  other 
laliur. 

10.  Extent  of  the  Advance.  —  Perhaps  the  simplest  way 
of  estimating  the  e.\tent  to  wliich  wages  are  advanced 
out  of  savings  is  to  look  at  the  industrial  system  as  a 
whole.  Air  the  contrivances  and  arrangements  for  pro- 
ducing and  e.\chaiiging  enjoyable  commodities,  the  three 
clas.ses  of  things  to  whidi  we  give  the  general  name 
of  Capital,  represent  labor  which  could  not  have  been 
rewarded  by  anything  of  its  own  producing. 

If  the  whole  existing  apparatus  of  production  and 
exchange  were  swept  away,  a  great  deal  of  labor  would 
be  required  for  restoring  it.  That  labor  would  have  to 
lie  ai)plied  without  immediate  return  of  its  own  yielding. 
Anybody  getting  a  weekly  allowance  of  enjoyable  com- 
modities, or  the  means  of  buying  such,  in  return  for  this 
labor,  would  be  getting  payment  in  advance  of  his  own 
l>roduction.  The  length  of  time  it  would  take  to  ieplaco 
the  capital  of  the  country,  measures  pretty  accurately  the 
extent  to  which  wages,  in  our  e.xisting  systt.u,  are  ])aid 
ill  advance  of  the  natural  return  for  labor. 

The  extent  to  which  wages  are  advanced  is  much  dis- 


i 


s 


i! 

"i 
•14 


m 


■« 


.,*'] 


t^>•l 


\{\ 


,1 


Jhlitieiil  Economy. 


^w'wA  Ity  Uk'  cUvisioii  of  lulxtr  amoii«  i'iui>ln)'orH.  Kadi 
fiupluycr  HI'.. Ills  as  a  niK'  to  ivc.vi'i'  i.it;lly  <iui.'kly,  l.y 
till!  salt!  of  his  pnuliiil,  llu'  aiiioimts  paul  tmt  to  liis 
laborers.  Tlu!  maiiufui-turfr  of  cloth,  for  cxainple,  limy 
Hull  his  prothu-t  fn»iii  week  to  week,  aInioHt  «s  (Hiiekly  as 
it  is  maile  ;  and  with  the  pioeceds  he  pays  his  lahoiers. 
So  that  his  advance  of  wages  seems  to  he  slij,'ht. 

Hut  this  is  to  look  only  at  the  .surface  of  the  matter. 
Tlie  manufacture  of  cloth  is  hut  one  stnye  of  the  work 
of  producing  coats.  When  tlie  manufactnrer  huys  his 
materials,  he  in  fact  advances  wages;  ho  pays  for  all 
the  work  already  done  upon  them  ;  he  gives  free  savings 
for  capital,  just  as  if  he  had  himself  hired  the  lah(jrers 
who  produced  the  materials. 

I'urther,  at  the  very  outset  of  his  enterprise  he  had 
to  make  large  outlays  of  savings  in  the  construction  of 
buildings  and  in  the  purchase  of  machinery.    These  ad- 
vances consisted  mainly  of  wages  paid  to  the  laborers 
who  produced  the  buildings  and  machinery.     It  is  quite 
immaterial  whether  he  himself  appeared  as  the  direct 
employer  of  these  lal)orers,  or  simply  took  over  by  pur- 
chase the  work  of  other  employers.     In  either  ca.se,  what- 
ever the  laborers  receive  for  producing  capital  can  only 
come  from  saving.s.     And,  as  to  the  extent  of  the  ad- 
vance, we  rtnidily  see  that  years  must  elap.se  before  the 
savings  jiaid  for  clearing  land,  opening  mines,  construct- 
ing railways,  ships,  buildings,  machinery,   etc.,  can  be 
fully  recovered    through    the   commodities  which   these 
help  to  produce. 


A  Priteticitl  Tfsf  Siii/ifi'sted, 


247 


•in)>liiyt>rN.     Kncli 
nvlly  iiiiifkly,  liy 
paid  mil  to  liis 
for  t'Ximiiilt',  niny 
lost  «9  (quickly  lis 
pays  liis  liiliorors. 
t)  lio  sli^'lit. 
acii  of  tlic!  matter. 
4ayo  of  the  work 
facturer  )»uys  his 
;  he  pays   for  all 
givos  froo  saviiij^s 
hired  the  lab(jrers 

ontcrpriso  he  had 
III;  coustruetion  of 
liiiery.  These  ad- 
id  to  the  laborers 
iiiery.  It  is  quite 
u'ed  as  the  direct 
took  oviir  l»y  pur- 
1  either  case,  what- 
<t  capital  can  only 
extent  of  the  ad- 
-j  elapse  before  the 
[t  mines,  construct- 
inery,  etc.,  can  be 
Jities  which   these 


11.  Fallacy  of  Denying  the  Advance  of  Wagei.  —  Mr. 
Henry  (leoi},'i!  and  sonm  other  writers  deny  that  wages 
are  a  real  advance,  alleging  that,  before  receiving  wages, 
the  laborers  always  add  a  full  etjuivalent  to  the  posses- 
sions of  their  employers.  Tiie  question  may  easily  be 
put  to  a  practieal  test  by  anybody  who  tu'cepts  Mr. 
(leorge's  doctrine.  It  is  only  mscessary  that  he  shall 
]irevail  on  a  body  of  laborers  sharing  his  view  to  join 
liini  ill  demonstrating,  by  actual  experiment,  that  wages 
can  be  paid  without  the  advance  of  savings. 

It  would  only  bo  necessary  that  he  and  they  slioidd 
withdraw  by  themselves,  and  l)egin  the  production  of 
any  commodity  or  commodities  they  please.  The  leader 
must  pay  his  men  week  by  week,  just  as  ordinary  em- 
ployers do;  but  he  is  to  avoid  the  use  of  savings  in 
doing  so.  He  is  even  to  avoid  the  indirect  use  of  other 
men's  savings.  If  he  resorts  to  exchange  of  products 
with  outsiders,  lie  is  to  offer  only  finished  coniniotlitie.s. 
Further,  he  must  make  no  covert  u.se  of  savings  by  an- 
ticipating the  results  of  the  exchange  tlirough  advances 
from  the  dealer.  He  must  wait  until  his  product  finds 
its  way  to  the  consumers  and  their  return  commodity 
finds  its  way  to  him.  On  these  terms  he  is  to  use  the 
results  of  each  week's  labor  with  entire  freedom,  as 
resources  for  the  payment  of  wages  to  his  men. 

Anybody  who  tries  this  experiment,  or  even  considers 
how  it  would  be  likely  to  work  if  tried,  will  scarcely  bo 
disposed  to  doubt  the  advance  of  wages,  lie  must  per- 
ceive that  the  addition  a  laborer  makes  to  his  employer's 


1 1] 


M 


jm 


24rt 


l\,litir.al   Kcihinmij. 


IinsscMsions  oiicli  wtM'k,  is  ii  vt-ry  .liU'tToiil  lliinj^  fmiii  llin 
assoiimoiit  «f  •■iij..y(il»Ie  ••..imno.lillfH  thn  IiilK.ivr  iimst 
havo  iiH  wii^cH.     Thii  (lilTcriMi.o   (■..iiMliliito.H  tlio  wholo 

( usioti  for  tlu!  ((xiHtciK't!  of  wages. 

12.  Production  by  Prison  Labor.— The  f<.r.'}^niiif,'  i.riii- 
cipltiH  liavi!  iui  ol.vidiis  iK'iiriiiy  ..n  iIh!  v.-xcl  nii.'sii.iii 
<.f  jirison  liilMir.  TluT.!  an;  twi.  <;liu'f  olij.-(ti..iiH  iiia.l.!  to 
tlu!  .■mi'loym.'iit  of  siidi  labor  lit  prodiuaion;  firsi.  that 
it  U'SHoiiH  till-  ilmiiaiul  for  frcn  labor,  ami  Hecondly,  that  it 
imiiosos  nil  unfair  coiniiciititni  on  free  laboriTH. 

The   first  objection   asHUiufs  that  there  is  a  limit  to 
the  total  (lemaiul  for  coiniiioditi.-s ;  that,  thcnifor.;,  if  any 
IK.rtioii  of  the  deinaiid  be  wupplied  by  i.ns..ii  hdmr,  tiio 
oiUM.ituiiities  for  free  laboiers  to  eaiii  vva^es  an?,  to  that 
extent.  al>ridj,'ed.     The   assunii.ti.ni  ia  phiusible ;  but  u 
little  careful  thinking  show.s  that  it  is  not  true.     It  is 
simply  one  form  of  the  notion  that  general  overi.roduc- 
lion  is  possible.     If  it  were  true,  it  would   follow  that 
every   inviMition   whieh   increases  the  productiveness  of 
liibor  is  injuri.ais  to  the  laborers.     It  W(.ul(l  even  follow 
that  destruction  of  commodities  by  tire,  shipwreck,  etc., 
is  a  good  thing  for  those  who  live  by  wngt;s.     In  fact, 
une  occasionally  hears  these  corollaries  of  the  dt.ctrine 
gravely  advanced  as  umiuestioiuible  truths. 

However  gn^at  the  supply  of  commodities  may  be,  it 
can  never  outrun  the  desire  to  possess  commodities.  You 
will  never  hear  of  anybody  who  has  more  than  ho  wi.shes 
to  have,  or  who  is  ready  to  part  with  his  product  with- 
out an  equivalent  of  other  products.  There  is.  iu  fact, 
no  limit  to  the  desire  for  wealth. 


L 


Thf  Qiifsfiiin  iif  I'liHiiii   ftiihiir 


240 


lh<!   liilioivr   must 

titUtOH     tlio    Wlioli! 

K!  vfXfil  (iin'slioii 

illijcrtiollH  lliaili!  In 

iliii'lion;  firsi,  tlmt 
(I  Hecondly,  tlnit  it 
>  labori'iH. 
liiTi!  is  a  limit  to 
it,  tli(;n!fttrt;,  if  any 
y  linstiii  labor,  tlu! 

vva<^t;8  are,  to  that 
J  plaiisiblo ;  but  a 
is  not  true.  It  is 
(moral  ovurprotluc- 
would    follow  that 

productivunoss  of 
would  even  follow 
ire,  shipwreck,  etc., 
)y  wages.  In  fact, 
i(!3  of  the  doctrine 
truths, 
luodities  may  bo,  it 

commodities.    You 

lore  than  he  wishes 

I  his  product  with- 

Thero  is,  iu  fact, 


The  owners  of  tlie  exintiii^  HU|)|ily  of  ^<mm|s  and  niMiity 
I  iin  Huftdy  Im)  roiinted  nn  to  use  ti  portion  for  ihrir  own 
••njoyinetit.  'I'lio  rrst  thoy  will  wisli  to  uso  no  as  to  jjain 
nioru  wtiulth,  and  this  can  he  dunc!  only  liy  hiring  pro- 
ductive laborers.  TIk;  <iuestion,  thru,  is  whelhcf  thent 
i-i  a  limit  to  the  amount  of  ntninioditii's  the  labonrs  are 
svilliiij»  to  receive  as  wa;4t's.  Tiiosc  wlio  assert  that  tlie 
demand  for  commodities  is  liniiled,  iuv^fX  tliat  tiie  laltor- 
era  constitute  the  f,'reat  market  for  tlie  produf  ts  of  labor; 
and  that  they  stiind  ready  to  receivu  nil,  and  more  than 
all,  that  otiicrs  may  spare. 

If  prison  labor  adds  anything  to  the  general  .supply 
of  ^((lod  tilings,  the  addition  can  have  no  tendency  to 
check  the  desire  of  the  capitalist  class  to  gain  increase 
of  wealth.  Neither  can  it  diminish  their  resources 
for  saving ,  on  the  contrary,  it  temis  to  increase  them. 
Conseiniently,  the  njost  eflective  n.se  of  jirison  labor  can 
ouly  tend  to  raise  the  wages  of  fnte  laliorers, 

The  .second  objection  rests  on  the  fact  that  prisoners 
do  not  work  for  wages.  Tlio.se  who  employ  them  are 
therefore  .said  to  have  an  unfair  advantage  ov(;r  employ- 
ers of  free  laltor,  unless  the  frcjo  laborers  are  willing  to 
accept  very  low  wages.  Herein  lies  the  unfair  compe- 
tition of  which  so  much  conifdaint  has  been  made. 

This  (iltjection  is,  at  bottom,  identiciil  with  the  other. 
It  assumes  tliat  there  is  not  titdd  enough  for  free  labor 
without  coming  into  hurtful  competition  with  the  mal- 
efactors. Hut  evidently  there  is  no  reason  why  the 
ela-sses  of  commodities  to  which  prison  labor  is  applied 


^':H 


ME 


h 


2r.o 


Jhlitirnl   Kioniuntf, 


Htimilil  lint  tir  ki'pt  ill  •liii-  |>iii|H>rt)<)n  to  otlM^r  commoili 
lii'H.  I'liltvsM  tlti'hi  lie  iii'i'tlli'HH  rliiili;;iii^  iif  till)  aitii'li'^ 
prixliict'tl  \>y  y\■\s^^\\\'\'■*,  tlim  I'Diiiriliiuioli  c  in  iut  nuikuiit'it 
nti  IIS  II  rc^iiliir  (Kiitiiiii  uf  tliu  Hiit-iily  ,  iiimI  onliiiiiry  in- 
iliistiy  i-iiii  riH  (uiMtly  luljiiMt  itHuIf  to  tlio  witiiatioii  aH  it 
idiiiil  if  the  [irimtniTs  vvfrf!  H(t  iiiiiiiy  fri'f  laliorcrs, 

I'lllcMm  till'  tniHliiku  Iw  llii'.dc  <»f  |i|n(li|(  iii^»  litu  ;^ri»ftt  a 
it'liitivi;  Mi|'|'l}  .if  lliimo  |iiirt'ifiiliir  iirtichw,  llu-ri!  is  no  xvn- 
NtMi  wliy  tiit-y  nIiiiiiUI  not  w\\  iit  tlioir  tintiinil  v.iliii>;  and 
if  tlii'V  M'll  III  tiii-ir  iiattirul  value,  the  fact  llint  a  ))oi'tioti  of 
tliu  HU|)|>Iy  cotiioH  friiiii  the  {iriHonH  ran  haw  no  ill  i>ll\>ct  on 
till!  wiij^cH  iitiil  iirofils  of  ilidM'  wliii  ii»'.kIii»«'  till'  n'maimliT. 

Tlu'ru  iM,  ill  fait,  no  nortWHiiry  coiiiiiclitiuii,  fair  or 
iiiifiiir,  lirtwot'ii  fn-i^  liiliorcrs  woikiii}^  for  liiiv,  aiiij  pris- 
oiHTs  niuU'rjjoiiijr  |k'iiu1  inlior.  Tlii'  featuro  to  whith 
olijt'ctiou  h  niiiiiu  is  |ir»'ciat'ly  the  |Kiint  at  which,  ho  fnr 
as  five  laliorcrH  arc  conivnii'tl,  tlio  Itcni'lif  of  priHon  lahof 
collies  in.  If  tliti  prisoiu'iH  wcro  five  tlicy  wntijil  Ih«  draw- 
ing,' full  vviij^cH  from  the  Hiivings  ollcriii^'  for  iiivc--tiii(!iit ; 
llicy  Would  Ik!  in  real  coniiictition  with  other  lahorcrs  of 
their  griidu.  Tleiiig  in  j«ri««;n,  all  they  receive  for  their 
lalior  is  their  jirisoii  fare,  aiwi  this  they  woiilil  recijive 
even  if  tlioy  were  kept  in  iilleness.  All  that  they  pro- 
dueo  is  therefore  a  dear  gain  to  the  rest  of  tin-  comiuii- 
iiity.  The  more  tluy  inodiice,  the  more  there  will  he 
for  honest  nieii  to  iMijoy.  Kveii  if  they  should  steadily 
fiiviiisli  the  whole  supply  of  some  articles,  and  sliouhl  do 
so  at  [trices  far  l«dow  the  iiutural  value,  the  result  wouhl 
he  a  henelit  and  not  an  injury  tu  the  rest  of  the  community. 


L 


to  oth««r  coiiitMotli 
iii^  tif  thu  nilifloM 
II  Cihii  hu  nH;kiiiinl 
,  mill  onliitnry  in- 
lli(<  Mitiiatioii  iiH  ii 

free  lalioicrs, 
ilm  iiij,'  l(Mi  ;,'ri»at  a 
lt'«,  ilicn-  i=5  IK)  r»«- 
iiatiiral  v.ilii(> ;  nml 
I't  tlint  a  ))oi'tii)ii  of 
liavf  no  ill  cllt'ct  on 
luc  tlif  rt'iiiiiiniltT. 
ini|i«'titiiiii.  fair  or 
for  liin-,  aii<l  j«ris- 
fi'iituro  to  which 
It  at  which,  mo  far 
e(if  of  pn.son  luhot 
u'V  Would  ht'  draw- 
ls' for  irivi'sliiicnt ; 
I  othor  liiliorcrs  of 
y  receive  for  their 
liey  would  recijivt! 
All  that  tlujy  pro- 
I'Ht  of  the  coinuiu- 
iiore  there  will  hi! 
ey  should  steadily 
•les,  and  should  do 
li,  the  result  would 
,  of  the  counuuiiity. 


cnAi'ii;!:  xxr. 

PROPITH    or    INDIVIDUAL    KMPI.OVRnS. 

1.  Ontlay  and  Return   of  the   Individual   Employer  — 

The  a;,'),'ii';^att'  |irolilH  (if  the  whole  liudy  nf  i'iii|i|iiyerH 
are  measured,  as  we  have  sci-n,  hy  ei>iii|ia!iii^  the  |iriiduet 
of  industry  with  the  enst  to  theni  of  «^i;lliii>^  it  Jilodui'e<l ; 
that  is,  hy  ei)iu|iarin^'  their  outlay  with  thu  return. 
Further,  tho  whole  outlay,  in  this  general  ease,  resolven 
itself  into  tho  real  wa^ex  paid  to  the  lahorei'H. 

The  protits  of  the  individual  employer  inusf  also  Iw 
measured,  of  course,  liy  eompariiij,'  his  outlay  with  hin 
return.  Hut  there  is  u  very  imporlatit  dillerenre  hitween 
tlie  two  cn.se!i.  Tho  oiitl.iy  of  Uie  individual  employvr 
does  not  consist  wholly  of  wagi.'s ;  tlu!  larger  part  of  it 
usually  consists  of  payments  luaiht  to  other  husiness  men 
for  nifdenals,  machinery,  etc.'  Again,  on  the  other  side 
I'f  the  account,  his  return,  in  the  sense  in  which  his 
profits  depend  on  it,  does  not  coiinist  of  the  ]iroduct  he, 
ohtains  hy  the  outlay.     It  consists  rather  of  the  amount 

■  Koran  illiiHtratinn  of  thin  8f0  tlut  uMo  <»\  pixtn'  Wi.  Of  coiirsu 
ilii'  ])rii[Mirti()n  nf  wuk's  Id  otlicr  outlay  iliffcw  wlijily  in  (liffcptiit 
imhistrii'H.  Tlu!  whole  iiialli  '■  depcrids  on  tin-  t-xUnt  t<i  whicli  tlivi 
Hlotiiif  labor  is  u|i|illi'd  to  thu  work  of  iiii!il>  vIiik  liilnir.  The  iiioru 
iiiinutc  tilt!  HulNlivisloii,  till!  gri'iitiT  thu  miio  of  oUiur  outlay  to  wa|{f». 

m 


'  m 


•i 


'ssi 


I\>IUtinl  Kfonomy. 


I 

1 


liM  r<tf<»ivi»!>i  fur  till-  I'MtUui  wIkii  Iu!  «»'1U  it;  nml  thU 
tU'lKiiil-i  unit.'  u^1  iiiuili  t»ii  thi!  i»iicu  ho  guU  a«  it  d<HH 
ot»  th<^  tiuuiitity  li«  l»ft«  t«»  hmU.' 

%  Two  SourcM  of  Individual  Profit.  -  KvltUuitly.  thfii, 
the  prolilN  of  tho  imliviilaiil  oiiii>l"y<r  ilo  imt  ri'«t  «m  no 
«iiiil>|if  a  liaHiH  a«  nKKr''KaU'  itmhts.  Thrni  l«  Init  mit^  way 
liy  wliirli  tlio  wluilt!  b.itly  of  .-uiiiloyi'is  may  iimko  inolitM, 
jiami'Iy,  liy  Ki'ltiii«  tho  laliortirH  to  jiroiluco  a  gmittT  «iimi»- 
tily  of  wealth  than  th«!y  i-ay  \.\m\\  n»  wagon,  IJut  tlioro 
lire  two  wayH  l»y  whicli  tho  individual  ciuploynr  iiiny  gain 
lirorttH;  flrnt,  by  gt'ttiiig  luhorors  to  produco  moro  than  lio 
lM»y»  for  Ihoir  Ht-rvicoH;  8o.'t»ii.lly,  hy  Kaining,  through 
fortuiiat.'  trmliiig.  a  part  of  tlio  prollLs  produced  by  othor 
lucn's  liiliorcrs. 

Ill  practioal  buiiioHS  those  two  ways  of  gaining  profit 
lire  iiiHopandtly  rombincd.  Undor  diviHion  (»f  lal)or  no 
iiiiui  can  bo  an  oinployer  without  boing  nlso  a  buyer  and 
Holl«r.  \\'\^  profits  dopond  on  hirt  suc<ohs  in  both  capaci- 
tios.  Hoth  tli<«  cost  to  liini  of  his  product,  and  tlio  return 
for  his  outlay,  dcpoml  in  largo  pari  on  Lho  rosults  of  his 
dealings  with  othor  business  men.  Though  tho  necessary 
1  ThlH  iM)lnt  aid  not  arUo  to  trouble  us  In  tlio  cnmi  of  aRRn-Kiitu 
proHtH.  Ill  111"'  K'ncnil  cajte  wn  ciin  poiiip.irc  rt  al  watfiH  \vi»li  prixlinl 
liy  i.hyisicul  iiiiaHiiniii.ut,  lii-t-aiiHu  ail  tlin  coiiiiniHlitli's  incliitlfil  in 
waKi's  art'  niiro.lur.il  in  tliu  pro.hi.t,  — with  a  Hurpluii  over,  whldi 
conMlitiil.HtlusKfntral  prollt.  AuBngat.-  prollts  an-  ik.I  aff.clr.l  l.y 
cliahKi'H  of  vaiui',  Hiiuf,  wiuii  <niu  ronimoUity  faiU  in  vuiiif,  oliicrM 
rl>»>,  III  fact,  vain.'  oan  lianlly  bo  naid  to  belong  toroiiiinoditien  In  lli« 
iiiaRH, or  to  tlif  Hiini  o(  wialtli.  U  In-lonRH  ratlnT  to  on.-  (;.)i.inio<llty  as 
coiniMirfil  Willi  aiiothtr,  wlieii  Hvo  question  is  of  exchanging  one  man's 
wtittlth  for  another  uiun'ti. 


Th«   }frii»urf  rt/  fitifiriifunl   I*roft. 


2Bn 


m'IIm  it;  iui«l  thU 

to   gut*    Alt    it   dlH!t 

-  KvltUuitly,  thi'n, 

ill)  itot  ri'Mt  ntl  RU 
•ri!  in  ImiI  mm  way 
may  miiki*  imitilri, 
CO  a  groatiT  nunn- 
kvagi'H.  Hut  tliuro 
lujiloynr  iiuiy  ^Mn 
liK'it  iiiori'  tliaii  lio 
),'aiiiiii};,  th»i>ii>,'li 
pruiliu'cil  by  othor 

!  of  (gaining  profit 

asioii  (if  labor  no 

I  also  a  l)uyer  un<l 

•Hs  ill  botli  rapaci- 

let,  ami  tlio  return 

Lilt!  results  of  liis 

luyli  tlio  ne(;essary 

tlio  ciMo  of  RgRregiiUj 
tx\  wii((''H  wiMi  proiliii'l 
iiiniiiilitk'H  jiicliiili'il  in 
a  KurpluK  over,  wIiI/jU 
itA  art-  mil  nffti'liil  l>y 
t  fiillrt  in  viiiuf,  DlliirH 
g  tocoiiuniiditirH  in  tho 
T  to  Dill-  coniiniMllty  aH 
[  exchanging  unu  inan'H 


buylny  nml  ^filing  brtwi'i-ri  eiinilnyi'rH  rri'ale  um  profit* 
lln-y  ilo  il«'ti'ri:iiiiit  vi-ry  I'lVrrtivily  who  Im  In  own  hihI 
I'lijoy  llui  pmlltM  tliat  uru  ereatfil  by  tlie  geiit'ral  iiiiJiiNtry 
iif  tho  couitiiuiiity. 
3   Money  a  Common  Meaiare  of  Ontlay  and  Return.— 

Ill  ('iiln|>lllltlg   lltilivuluill  prnlilH  we   ili'i'ii  t>i  Itiive  the  nUt* 

lay  ami  lln'  leliirii  expn'sseii  in  tl•rlll^"  nf  tlie  saiiie  ileiinin« 
itiatiiiii.  nilnTwisi',  we  eaiiiint  rninpare  theiii  mill  lay 
liow  great  tho  Uill'erenro  in.  We  iiKinot,  fur  example,  in 
tint  caHti  of  any  one  employer,  emiipare  the  geiu^ral  assnrt- 
nieiit  of  eomnioilitieM  coiiMtitnting  the  real  wa;;ep  of  bin 
labnrern  with  tlie  raise  of  HlmeH  or  the  bale  of  ebith 
tliey  hel|»  to  proilnie.  Moth  wayes  ami  pioiliirt  mii«t  b« 
uxpreHHed  in  teriiiH  of  n  eiiinmiiii  iiii'a<iiie. 

For  thin  piirposn  it  iH  most  <'onvenieiit  to  ime  money. 
Ill  point  of  Htrii't  fnet  the  iiniiviitiial  einploycr  ilneH 
not  pay  tho  real  wages  of  his  laborers ;  his  agreement  is 
to  pny  them  certain  Hums  of  money.  In  spemling  their 
nioiioy  the  laborers  may  buy  shrewilly  ami  get  higher 
real  wages ;  or  they  may  liny  badly  ami  get  less  for 
their  labor.  Ihit  this  does  not  afVoct  the  profits  of  their 
om|doyer.  His  outlay  is,  in  strietncss,  tho  money  hu 
pays.  The  real  wages  of  his  laborers  nro  drawn  from 
the  general  capital  of  the  community :  from  that  portion 
of  the  general  capital  that  consists  of  coii;modities  in 
tho  hands  of  tlie  retail  dealers. 

Expressing  both  outlay  and  return  in  money,  wo  Imvo 
.1  basis  for  reckoning  profits.  This  modo  is,  of  coiirse, 
open   to  tho  danger  of  error   through   changes  in  the 


.  1 


:.  ^ 


xu 


254 


Political    Econoviy. 


value  of  luoiicy.  Uiit  it  lias  tlio  advantago  of  luMiiy 
Kiiniile,  aiul  the  further  reeonnnendatioii  of  heiii},'  the  one 
ill  iiractical  use.  Of  course,  real  profits  consist  in  in- 
creased coniiiiand  over  coniniodilies  in  },'eneral.  In  order 
tliat  profits  reckoned  in  nntiicy  shall  represent  the  real 
result  of  an  enii»h)}er's  outlay,  it  is  necessary  t<t  apjily 
a  correction  for  any  rise  or  fall  occuriny  in  the  value  of 
money  lietween  the  outlay  and  the  return.  This  is  par- 
ticularly necessary  where,  as  happens  in  the  case  of  fixed 
capital  and  many  other  forms  of  iirodiu'tive  exi)enditure, 
consideralile  periods  of  lime  intervene  between  the  outlay 
and  the  completed  return. 

4,  Factors  on  which  Individual  Profits  Depend.  —  Un- 
derstanding this  correction  to  be  made  wherever  nec- 
essary, we  may  say  that  each  employer's  share  in  the 
agf^regate  profits  of  industry  dcipends  on  three  factors : 

(1)  The  cost  to  him  of  his  product  (meaning  tliereby 
the  amount  of  money  each  yard,  pound,  bushel,  or  other 
unit  costs  him). 

(2)  The  price  he  obtains  for  it. 

(3)  The  quantity  he  produces  (or  acquires  in  other 
ways).' 

>  The  word  "employer"  is  to  be  understood  as  Including  all  per- 
sons who  operate  with  savings,  whether  they  actually  hire  laborers  or 
not.  Similarly  the  word  "  produce  "  is  used  in  this  discussion,  to  in- 
clude all  ways  of  acquiring  products  with  a  view  to  profit.  It  would 
cumber  the  treatment  of  profits  too  much  to  speak  separately,  in 
every  case,  of  merchants,  bankers,  carriers,  speculators,  etc.  Further, 
it  is  to  be  remembered  that  the  word  "laborer"  includes  salesmen, 
book-keepers,  hired  managers,  etc. 


Varitihle  Elcmrntu  of  Monrij  Cont, 


urn 


ilvantaf^o  of  boiuy 
in  of  boiiiy  tlio  one 
jfits  consist  in  in- 
j^'itnoral.  In  ordur 
niprosent  tliu  rcul 
iKjcessary  to  apply 
Jig  in  the  valuo.  of 
turn.  This  is  par- 
in  tlie  case  of  iixed 
iK.'tive  expenditure, 
between  the  outlay 

(fits  Depend.  —  Un- 
ade  wherever  nec- 
jyer's  share  in  the 
on  three  factors : 
,  (meaning  thereby 
id,  bushel,  or  other 


acquires  in  other 


)d  as  including  all  per- 
ctually  hire  laborers  or 
1  this  discussion,  to  in- 
icw  to  profit.  It  would 
to  speak  separately,  in 
L'culators,  etc.  Further, 
rer"  includes  salesmen. 


Karh  of  tho.se  factors  is  vaiiable.  Kacli  of  them  mav 
diller  in  the  rase  of  dillerent  employers.  It  rtunains  for 
us  to  note  the  principal  causes  of  variation  and  the  ways 
in   which   indiviihial  pntlits  an;  allrcl.'d   tbcn-liy. 

5.  Cost  of  Capital  Differs  to  Different  Employers.  — 
Th(!  cost  of  a  product  to  the  employer  may  lie  divided, 
as  we  have  .seen,  into  two  general  .lasses  of  iiayments: 
tirst,  the  amounts  paid  for  machinery  and  materials  to 
other  employers;  secondly,  the  amounts  jiaid  as  wages 
to  his  own  laborers.  The  cost  of  capital  bought  from 
other  employers  may  vary  in  two  distinct  ways  :  it  I'lay 
diller  in  price  at  difl'erent  times  and  to  difl'erent  buvers ; 
secondly,  the  (piantity  or  (juality  of  product  it  yields 
may  diller  to  different  emidoyers. 

One  employer  may  have  the  sagacity  and  good  fortune 
to  buy  the  most  suitable  articles,  and  to  buy  them  at  the 
most  favorable  time,  and  on  the  m(>st  favoraljle  terms. 
Another,  through  incapacity  or  inadvertence,  may  buy 
less  shrewdly,  buying  less  suitable  articles,  or  buying 
them  at  the  wrong  time  and  place,  or  in  wrong  (pian- 
tity.  1  rices,  it  must  be  remembered,  are  never  long 
stationary  and  are  never  quite  uniform.  It  is  usually 
possible  to  get  a  good  bargain,  if  cjiie  knows  how  to 
go  about  it.  There  is  always  danger  of  getting  a  bad 
bargain,  unless  one  has  the  requisite  knowledge  and 
takes  the  requisite  care  to  avoid  it. 

Now,  in  paying  ior  materials  or  machinery,  the  pur 
chaser  does  not  merely  replace  to  the  scdlcr  the  savings 
spent  in  getting  them  produced.    The  price  includes  also 


'•'■»  t: 


*K, 


2r)6 


J'uliticul  Economy. 


I 


wlmtov«r  of  profit  the  seller  is  to  have  for  his  share  in 
prodiiciii},'  the  eominodities  which  ultinintely  result  from 
the  mncliinery  or  materials.  How  much  the  eventual 
profit  is  to  lu!  cannot  he  known  yet.  The  huyer  takes 
over  the  chances,  paying  the  seller  a  .sum  which  may 
later  prove  to  have  hetui  indelinitely  greater  or  less  tiian 
his  fair  proportion.     The  ellect  on  the  profits  of  each  is 

ohvious. 

Uf  course  prices  of  machinery  and  materials,  like  the 
prices  of  other  things,  tend  to  conform,  on  the  average, 
to  the  cost  of  production.     lUit  the  price  in  any  partic- 
ular cas(!  may  vary  widely  from  this  standard.     Also,  the 
cost  of  prcjduction  itself  is  suhject  to  changes.    The  em- 
ployer who  buys  when  the  market  price  is  lowest  makes 
higher  profits,  other   things  being  equal,  than  the  one 
who  buys  when  the  market  price  is  high.     The  employer 
who   buys   his    machinery  just  after  an    important  im- 
provement has  been  introduced  in  the  production  of  it, 
has  a  great  advantage  over  the  one  who  had  the  misfor- 
tune to  buy  just  before  the  new  inventions  were  made. 
One  has  the  ill  fortune  to  have  laid  in  a  large  stock  of 
some  necessary  material  just  before  a  great  cheapening 
of  it  through  the  discovery  of  new  sources  of  supply,  or 
just  before  the  discovery  of  a  cheaper  and  better  substi- 
tute make°  the  material  no  longer  necessary.     Another 
has  the  good  fortune  to  escape  loss  by  the  change.    And 
so  on.     I-lmidoyers  take  individually  the  risks  of  indus- 
try.    It  makes  a  great   difference   to  each  whether  his 
risks  in  the  purchase  of  capital  turn  out  well  or  ill. 


fe 
i 


Vuiidble  Jill  tut  Ills  of  Munci/  ('out. 


257 


ve  for  his  sliani  in 
nintely  result  from 
iiuch  till)  (iventual 
The  buyer  takes 
a  sum  which  may 
jreater  or  less  than 
e  profits  of  each  is 

niaterials,  like  the 
•m,  on  the  avera<,'c, 
[irice  in  any  partic- 
tandard.     Also,  the 

changes.  The  em- 
ice  is  lowest  makes 
tjual,  than  the  one 
iyh.     The  employer 

an  important  im- 
le  production  of  it, 
vho  had  the  misfor- 
^entions  were  made. 
[  in  a  large  stock  of 

a  great  cheapening 
ources  of  supply,  or 
r  and  better  substi- 
lecessary.  Another 
ly  the  change.    And 

the  risks  of  indus- 
,0  each  whether  his 
n  out  well  or  ill 


Secondly,  the  cost  of  machinery  and  materials  may 
vary  according  to  the  employur's  success  in  getting  the 
best  results  out  of  them  in  actual  use.  One  employer 
may  hav((  great  skill  in  arranging  tlie  internal  economy 
of  his  establishmmit,  in  keeping  down  tht;  wear  and 
tear  of  machinery  and  buildings,  in  preventing  waste  of 
materials,  and  in  turning  everything  to  the  best  account. 
Another  may  fail  in  one  or  all  of  these  respects,  through 
lack  of  su])erior  judgment,  or  want  of  energy,  or  through 
over-conlidence  in  the  faithfulness  of  subordinates,  lie- 
sides  these  and  similar  elements  of  dill'crenee,  which 
g(tod  management  may  be  supi)osed  to  control,  there  are 
not  a  few  others  which  no  human  sagacity  can  foresee  or 
wholly  prevent,  —  such  as  ill-liealth,  accidental  injuries 
to  machinery,  destruction  by  fire  or  flood,  and  (in  such 
industries  as  farming)  ravages  of  insects,  local  drouths, 
etc.  These  are  matters  as  to  which  scarcely  two  em- 
l)loyers  fare  wholly  alike.  The  result  is  considerable 
divergences  in  the  proportion  of  product  to  outlay  for 
machinery  and  materials. 

6.  Cost  of  Labor  Differs  to  Different  Employers.  —  As 
to  wages  as  an  element  in  the  cost  of  products  to  the 
employer,  it  is  evident  that  here  again  two  things  are 
to  be  taken  into  the  account:  first,  the  rate  of  wages 
paid,  and  secondly,  the  efficiency  of  the  laborers.  Each 
of  these  may  differ  in  the  case  of  different  laborers. 
IJoth  must  be  taken  into  account  in  order  to  determine 
the  cost  of  each  man's  labor  to  the  employer. 

Wages  for  any  given  grade  of  labor  may  differ  consid- 


.  '\ 


r 


258 


I'olUical  Economy. 


cmbly,  as  we  have  soeu,  in  dillorout  parts  of  thu  country, 
owing  to  the  cxiicnso  and  other  dilliculties  tluit  laborerH 
nieot  in  changing  their  abode.  Tlie  eniployer  who  1ms 
liis  business  in  a  region  where  wages  are  low,  has,  in  this 
res^jcct,  an  advantage  in  cost  of  labor  over  producers  of 
tlie  same  commodity  in  other  parts  of  the  country. 

A<'ain.  on  the  side  of  cllicieiicy,  it  is  certain  that  some 
employers  have  the  faculty  of  disposing  and  directing 
their  laborers  in  such  a  way  as  to  turn  their  labor  to 
bettor  account  than  other  emi»loyers  in  the  same  busi- 
ness. With  no  greater  outlay  in  wages  tlu^y  succeed  in 
obtaining  a  greater  product.  It  makes  a  great  difference 
whether  the  parts  of  the  productive  process  are  or  arc 
not  apportion^^d  in  the  best  way ;  whether  labor  is  econo- 
mized in  every  possible  way  or  is  wasted ;  whether  the 
workmen  perform  their  work  with  energy  or  with  slack- 
ness :  and  so  on.  These  are  points  that  depend  chiefly 
on  the  ability  of  the  manager.  Other  thuigs  being 
equal,  the  employer  who  is  most  successful  in  these 
respects  gets  his  product  at  the  lowest  cost. 

7.  Cost  of  Natural  and  Other  Advantages.  —  There  is, 
finally,  a  whole  group  of  circumstances  connected  with 
the  natural  advantages  for  production,  as  to  which 
scarcely  two  employers  in  tlie  same  industry  stand  on 
a  footing  of  entire  equality.  Possession  of  the  best 
kinds  of  the  requisite  natural  wealth,  nearness  to  the 
best  sources  of  materials,  nearness  to  the  best  markets 
for  the  product,  cheap  transportation,  and  other  similar 
advantages,  are  of  great  importau'^e  to  employers.     It  is 


irts  of  thu  country, 
iiltit'S  tlmt  laborers 
employer  who  has 
ire  low,  has,  in  this 
•  over  producers  of 
of  the  country. 
s  ccrtani  that  some 
ising  and  directing 
;urn  their  labor  to 

in  the  same  busi- 
jes  tlu^y  succeed  in 
}s  a  great  difference 

process  are  or  are 
ther  labor  is  econo- 
asted;  whether  the 
lergy  or  with  slnck- 
that  depend  chiefly 
)ther  things  being 
successful  in  these 
est  cost. 

antages.  —  There  is, 
ices  connected  with 
ction,   as   to   which 

industry  stand  on 
session  of  the  best 
1th,  nearness  to  the 
;o  the  best  markets 
1,  and  other  similar 
to  employers.     It  is 


Viirvddf  EUinruU  of  Moiwif  (Utst. 


200 


;iin',  as  W(^  shall  see  later,  that  those  who  \\\\\v  i\w  use 
of  special  advantag(!,s  such  as  lliese,  may  have  to  give 
a  full  o(j\iivalent  for  them.  Ihit  the  amount  of  the  pay- 
ment in  any  pnrtii'ular  case  is  a  matter  of  agreement 
lu'tween  m<;n.  Here,  as  in  the  purdiase  of  machinery  and 
olluT  capital,  one  employer  may  obtain  special  advantages 
fur  less  than  they  are  worth.  Another  may  make  a  bad 
liargain,  may  find  that  he  ha.s  overrated  the  extent  of  the 
advantage,  and,  by  paying  too  much  for  it,  has  increased 
consideialdy  the  money  cost  of  his  product. 

8.  Interest  on  Borrowed  Savings.  —  Mo-ot  employers 
make  more  or  less  use  of  Itorrowed  savings.  'I'he  inter- 
est they  pay  for  these  loans  may  be  regarded  as  an  item 
in  the  cost  to  them  of  their  product.  The  loan,  it  is 
true,  is  presumably  a  source  of  gain  to  the  borrower. 
It  enables  him  to  do  a  larger  business  than  he  could 
have  done  without  it;  and  from  this  additional  business 
he  expects  to  make  more  than  he  pays  for  the  loan. 
JUit,  it  remains  true  that  the  interest  is  an  item  in  the 
cost  to  him  of  the  additional  product  he  obtains  by 
means  of  the  loan.  The  lower  the  interest  he  pays,  the 
greater  his  gain,  in  any  given  circumstances,  from  the 
additional  business  done  by  borrowing.  Here,  as  in  so 
many  other  things,  the  emitloyer  of  large  means  and 
established  credit  has  an  advantage  ovx'r  employers  of 
small  resouices  and  inferior  credit.  The  great  compa- 
nies and  strong  bi.;siness  liouses  cai.  jet  loans  at  consid- 
erably lower  rates  of  interest  than  ordinary  employers 
can,  with  corresponding  advantage  in  making  profits. 


>l 


y\ 


im 


'!?| 


':sm 


it 


< 
# 


•iC.O 


hiliiiiiil   Kromtinj. 


It  liillHt  Mill  111!  Hn|ilins(!tl,  lidWi'Vci,  llml,  II  luw  nistMiii- 
ary  mtc  of  iiitcrcHt  jh  on  tlio  wl  die  a  lliin^^  t<.  Im;  tlcHir.nl 
by  I'lniilnycrH.  On  \\\\\  cniitriiry  it  is  a  h\<!,\\  of  low  ].rolit,H. 
It  hIiowh  thiit  111"'  proHiH'cts  of  luiikin^  ^aiii  l»y  tlio  iis(! 
of  saviiij^s,  whtaliisr  oiicAs  own  or  iM.rrowcil,  an;  not  very 
«'iicoiiraj^in},'.  In  other  wohIh,  it  sIiowh  tliat  wa^MiH  an^ 
lii^'h  ill  coniiiariHoii  witli  i\w  prodnitivciicss  of  lalior. 

9.  Advantageous  Sale*  as  a  Source  of  Profit.  —AnHiiiiiiiiK 
tilt!  valnt"  of  nittni'y  to  1k!  ctmHtant,  or  tliiit  a  forrt'ttion  is 
inadi!  ft.r  variations  t»f  its  valui!,  it  is  oasy  to  hco  that  tlu; 
]trt»lits  of  thi!  huHini'MS  man  in  rtisptitit  of  any  giviiii  tiuaii- 
tity  of  iiroiUift,  art!  nifiisnriMl  hy  thtt  (liir.'ri'nio  l»(!twe(!n 
th(!  money  cost  of   it  to  hini  and  the  laiee  hu  obtains 

for  it. 

When  the  jiricc  of  n  product  is  ahcvo  that  of  other 
thin{j;s  iirtulntH'd  by  the  same  amount  of  lahor  nnd  wait- 
ing,', either  thu  emidoyers  en{,'ngoil  in  protluciiif,'  it,  or  the 
lahttrers,  or  both,  have  hij^her  rewartls  than  the  iiroduet^rs 
of  other  tilings.  The  sharing,'  of  the  extra  returns  be- 
tween employers  an  1  labttrers  dcpeiitls  on  th«;  greater  or 
le.ss  readiness  with  which  the  laborers  in  other  inilustries 
can  be  drawn  in  at  need,  to  take  part  in  the  production. 
In  cases  where  this  can  bo  done  freely,  the  benefit  of 
the  high  market  value  accrues  to  the  employers.  If, 
however,  there  be  any  serif)us  barrier  to  free  competition 
on  the  part  of  outside  laborers,  the  laborer^  who  are  in 
the  industry  may  obtain  ri  j-art  of  the  advantage.  If  the 
barrier,  and  consequeiii'y  the  high  market  value,  be  per 
manent,  they  are  certain  to  get  all  of  it 


1 


Tilt  Mniifji  Itfliirn.  Vnriahh. 


2A1 


,  Uinl,  II  low  riistolii- 
i  tiling  li>  li'!  (IcHiriMl 
I  hI},'Ii  of  Iiiw  prolitH. 
iiig  j^aiii  l»y  tlui  UK(j 
ir<tW(!il,  iir(!  iinl  vfiy 

IWH    tllllt    Wli;.M!S     lilt' 

tivciicHs  (if  lulior. 
f  Profit.  —  AHHUiiiiiiK 
r  Unit  fi  (torrcctioii  is 

easy  to  Htiis  that  the 
t  of  any  givitii  (luan- 
!  (lill'i'mico  l»(!twe(ii 
\\(i  jiiicc!  ho  ohtaiiis 

above  that  of  other 
it  of  labor  niul  wait- 
I  producing  it.  fr  tin; 
s  than  the  iiroduccrH 
III]  extra  returns  be- 
ids  on  tli'i  greater  or 
rs  in  other  iiidustrieH 
rt  in  the  prochiction. 
freely,  the  benefit  of 

the  employers.  If, 
ir  to  free  competition 

laborer^  who  are  in 
le  advantage.  If  the 
market  value,  be  per 

of  it 


Apart  from  the  Hperial  profits  due  in  particular  indiis- 
irieH  to  liigli  market  value  (,f  tlieir  prodiifts,  it  in  often 
pOHHJble  for  tJit!  individual  employf^r  to  j»et  a  liij,dicr  prif n 
for  Ills  prodiK 't  tlirtn  others  an;  ^ettinj,'  for  the  .same  ar- 
ticle, or  one  ''!f|i;..illy  H'"»d.  !n  the  many  IIiictii.ition.H  of 
price,  it  oftc-n  makes  n  considerable  dillcnince  whetlmr 
"ti(!  .sells  his  product  to-day  or  holds  it  back  till  to- 
morrow, '{'he  mail  who  can  best  foresee  the  (^ftiirse  of 
the  market  ha.s  a  decidi-d  advuntaj,'f!.  Thi.1  ia  e.speeially 
Mue  in  those  industries  in  which  contracts  are  made  to 
deliver  ^'oods  in  the  future  at  a  fi,\ed  price.  Much  e.xtra 
I'rolit  i.s  often  made  by  contracts  entered  into  at  the 
ri(,dit  moment. 

Af^ain,  the  f;rnat  body  f)f  consumers  are  either  too 
htisy  or  too  carele.ss  to  take  the  trouble  of  investigatinj,' 
and  comparing  the  r|ualiti<;s  of  different  mak(!S  of  an 
arLicIf!.  They  are  apt  to  buy  the  kind  they  have  found 
sfitisfaetory  in  the  past,  just  .is  they  are  apt  to  buy  of 
the  same  dealer  year  after  year.  This  gives  an  enormou.s 
advantage  to  producers  who  have  an  established  reputa- 
tion. They  can  charge  more  for  their  goods  than  those 
'•an  whose  reputation  is  yet  to  be  made;  and  even  at  the 
higher  jmce  they  can  find  a  steadier  market  and  a  more 
ready  sale.  Many  a  fortune  is  made  simply  by  the  i»os- 
e.ssion  of  an  established  brand,  or  a  well-known  name. 
The  immen.se  extension  of  "advertising"  in  our  day.  and 
the  many  devices  adopted  to  bring  new  wares  into  notice 
■ire  sufticient  to  show  how  great  is  the  commercial  value 
■f  having  one's  particular  "make"  of  an  article,  or  one's 


■••r^^^ 
"■^i 
*:':*■ 


;! 


262 


I\)lUiral  Keonomy, 


]iiirti('uliir  hIiui),  fuvumlily  ku|it  in  iiiiii<l  !•}'  km  iniuiy 
{lursoiis  as  poANiblu. 

10.  Loiiei  in  the  Sale  of  the  Product.  —  Pass  in  j|  now 
to  llu!  (.'iiscs  ill  wliiili  i'(Hiiiiiip(liti('.s  hiivf  (i»  I"!  hoM  nt  iv 
l(t\v  price,  it  is  tlcnr  lliiit  tlic  Insscs  ii'sulliii},'  frtnii  this 
(!(iuso  iiiiisl  n.siiiiUy  full  on  llio  eiiijilnyt'r.  Tliu  lulinn'iH 
nmy  siiU'ur  niducliitn  «if  wh^uh,  hut  tliu  ('iii|ilnyt'r  niny 
sull'or  total  los.s  of  iirolits.  Haiti  ns  it  is  for  lalittrcsrs  to 
c'httiigo  occuiiatiuns,  it  is  still  liaidcr,  in  fact  iirarticiiUy 
inipossildc,  for  tht;  uinployor  to  ciiaiij^c.  It  ofU-n  iia|i- 
pi'ns  that  till!  oniployfrs  in  iin  imluslry  aiv  (ihli^'cd  to  go 
on  for  a  noiiHidurablt'  ptTiud  willinnt  any  profits,  —  jici- 
hups  cvon  at  a  loss,  tliouyh  at  a  snialK'r  loss  than  total 
cessation  would  inii'ly.  This  is  oiii^  of  the  risks  civery 
oniployor  nmst  run.  Whatever  he  produces,  it  may 
liappoh  that  other  men  shall  unduly  (ixtcnd  the  \iroduo- 
tion  of  the  article,  thus  involvi'.;;  him  in  dilHculties  and 
losses,  which  no  skill  or  forethouj^ht  on  his  part  could 
avert. 

There  is,  connected  with  the  .sale  of  the  product,  a 
further  d-anger  of  loss  j,'rowin<^  out  of  the  fact  that 
produ(!th>  are  so  largely  sold  on  credit.  Kv(!ry  jirodut'cr 
is  practically  compidhMl  to  follow  tiie  custom  of  his  trade 
in  this  respect.  Those  who  are  fortunate  enouj,di  to  re- 
c(;ivo  i>ayment,  when  due,  for  all  they  sell,  iirohaliiy 
make  higher  profits  liecause  of  the  risk  they  have  run 
in  selling  on  credit.  Tho.se,  however,  who  are  unfortu- 
mite  in  this  regard,  not  only  fail  to  nuvko  a  profit,  hut 
even  lose  the  original   savings  invested  in  the  venture. 


Double  Effect  »/  Volumt  of  lluaint$a,  2(J8 


liiitl    l>y  UH    iiiutiy 

Jt  —  PiiHsiii;^  now 
vf  ((I  |p(!  soM  at  a 
.'NuUiiip;  from  thin 
rtT.  Till)  lulMircrH 
lit!   ciiiitloycr  iiiny 

is  for  laltontr.s  to 
ill  fnct  iiriutic'iiUy 
;('.  It  often  Imii- 
)•  niv  olilij,'t'(l  to  f,'o 
imy  jirolits,  —  jioi- 
ur  loHH  tliaii  total 
if  th(!  risks  t'vc^ry 
produirs,  it  may 
xtt'iid  tlio  iiriHluc- 

in  (lilHoiltics  and 
on  his  part  could 

of  the  product,  a 
of  the  fact,  that 
.  Kv(!ry  producer 
ustoiii  of  his  trade 
lato  eiiou^fh  to  re- 
ley  sell,  probaldy 
sk  they  have  run 
who  are  unfortu- 
uake  a  profit,  Imt 
;d  in  the  venture. 


A  few  HeriouH  loHBUH  of  this  kind  may  undo  the  protits  of 
veufH,  nr  may  uvuii  involve  in  Imnkrnptcy  the  cmployur 
whu  incurs  them.  Of  cuurHu  lioru,  nn  in  other  matters, 
ihe  risk  may  lie  ^jreatly  reduced  l»y  careful  mair.^cMnent ; 
liut  it  is  never  wholly  atist'iit  from  sales  on  credit. 

11.  Scale  of  the  Employer'!  Traniactioni.  --  A  com- 
pari.son  of  tlie  money  cost  witli  tiie  selling  price  of  tho 
product,  shown  tho  ratio  of  tho  employer's  outlay  to  his 
return,  or  the  rate  of  his  profit.  To  determine  the  total 
amount  of  his  protits  a  third  factor  is  necessary,  namely, 
thi.'  amount  of  business  he  does  on  these  terms.  The 
;,'reater  his  capital,  the  greater,  at  any  given  rate,  will 
his  share  of  tlie  general  prolits  he. 

The  importance  «if  the  scale  uf  his  transactions  in  this 
respect  is  too  obvious  to  need  discussion.  There  is,  how- 
ever, another  less  obvious  way  in  which  un  employer's 
profits  are  influenced  by  the  volume  of  business  ho 
carries  on.  Some  of  the  items  in  the  money  cost  of  a 
product  are  less  in  proportion  to  the  (juantity  produced, 
where  business  is  done  on  a  large  scale  than  where  it  is 
ilone  on  a  small  scale.  This  is  especially  true  of  what 
may  bo  called  tho  general  expenses.  It  is  about  as  easy 
to  conduct  a  business  of  a  million  a  year  as  one  of  half 
a  million.  The  purchase  of  supplies,  the  book-keeping, 
the  correspondence,  tho  general  oversight  and  phinning 
of  tho  work,  are  not  much  more  onerous  or  costly  in  the 
one  ca.so  than  tho  other.  There  is,  therefore,  a  compara- 
tive saving  of  cost,  in  these  respects,  in  tho  larger  scale 
of  business. 


1 


*  1 


f  ■ " 


t 


1 


'. 


i 
I 


I 


264 


JUifknl  KfOHomif. 


Akhiii,  tliu  lur^ti  liiiji'i  can  um-ally  buy  thingn  i»or« 
clu'oply  tljiui  tint  Hiimll  bnynr.  Tlio  «'mpl<>yur  vvlm  |>m- 
lUiccH  f*ii  ail  *!NUtiiMivo  Nonlo  can  gut  hiN  iiiatcrifilH  aiitt 
iii.ii'liitu'ry  lit  l<>\v«'r  \mv'H  than  llio  i'iii|iliiy»ji  wlm  iinum 
I'ltt  Kinall  (iiiaiititics  in  ('iiiii|>iiri.>«iii. 

Tliii'illy.  Ill  u  laryo  oHlalilislimt'iit  iiiort'  r>ni'ftivo  <livi«. 
ion  of  labor  is  (tfttm  itOMHiblo  i  also  nioro  conniUsto  ain>U- 
catioii  of  labor-saving  tlu vices.  In  a  large  busini's^  it 
ofton  Imppcns  that  niailiitu'ry  tan  bo  uctinoniically  nsed 
to  «lu  thinys  wliicli,  in  a  small  businuHM,  have  to  bo  itcr- 
forini'd  i»y  IhuhI,  lu'canse  tlicio  is  !'.ot  t'no«},'li  work  to 
bo  (lono  to  koiip  a  niachino  busy. 

In  those  ami  Bomo  other  ways,  various  ecM)nomieH  in 
tlio  cost  of  tho  prothict  can  bo  introilnceil  as  tho  scalo 
of  oitcrations  is  onlargoil.  On  tho  other  hand,  a  very 
largo  bnsinoss  is  nnder  some  disadvantiij^'os.  The  larg(!r 
tho  scale  of  operations,  tho  more  dilliiult  it  iK'Comos 
for  tin;  omidoycr  to  exorcise  a  miimto  suporvisioii  over 
all  Uio  details  Ho  has  to  leave  more  to  tho  care  of 
liired  assistants,  whoso  interest  in  the  business  can  never 
bo  as  keen  and  stimulating  as  liis  own.  In  a  very  largo 
estalilishment  there  is  apt  to  be  a  good  deal  of  waste, 
throiij^h  negle<t  of  (tpportunities  for  small  economies  of 
various  kinds.  The  little  odds  ami  ends,  which,  in  the 
yearly  aggregate  amount  to  a  considerable  sum,  are  not 
sufHciontly  cared  for.  Then,  there  is  a  limit  beyond 
which  no  ordinary  business  can  be  extended  without  tho 
danger  of  lo.snig,  even  in  its  greater  features,  that  unity 
of  management  which  is  essential  to  snccesfi.     There  is. 


firuu'th  t^f  JluttMM  Cot'jHtnitioHt. 


MS 


htl)'  tliiiiKH  iiiorM 
iiployur  wliu  prn- 
ItJM  iiiult'riiilM  ami 
iipliiyoi  wli«»  iiHi's 

i'(t  cIliTtivo  (livis. 
i>  comploto  ttiipli- 
liirj^e  biKsim'SH  it 
jcoiKJiniially  used 
,  have  ti>  l»o  iier- 
t'UoU(,'li  work  to 

ouH  cconomioH  in 
mod  lis  tho  Hcnlo 
hor  lifind,  a  very 
ii|,'f'H.  The  larger 
liciilt  it  lu'coiiit'S 
HuperviHioii  uver 
m  to  tho  care  of 
lusinuss  can  never 
[n  a  very  largo 
rid  deal  of  waste, 
1111 11  ('comiinios  of 
ids,  vvliich,  ill  tho 
iililo  .sum,  arc  not 
i  a  limit  beyond 
,'iidod  without  tho 
aturos,  that  unity 
ucces3.     There  is, 


I  HU|>|H)s(>,  a  nioNl  ndvanta}{t>()ii.s  m'alu  of  produitiwn,  nr 
of  tmdi',  in  uach  crno;  nnd  th«  i>ni{iloyer  who  hilH  thift 
hai'py  moan  liaN  the  lienoiit  of  \n»  sagacity  in  itnhantotl 

pfiilits. 

'I'hn  iiioHt  oordidmical  mid  olloctivc  sralo  of  MpiTatiHin 
would  Mt'cm  to  di'|H>Md  ill  jiart  on  the  naluiv  of  Un'  laisi- 
nuH«,  and  in  part  «tn  the  oapatity  of  tho  omployor  hinf 
self.  Tho  tondoiK  y  of  our  time  in  undniihtodly  towiudH 
largo  industrial  ostrthli.slinieiitM.  Ijjrge  milln,  faetorioM, 
and  Htonts  m-oin  to  bo  gradually  Niiprisoding  iju'  Niimllor 
Olios,  liusinr'ss  that  iisoil  to  bo  •luriod  on  by  sin^rl,.  jiulj. 
vidual.H  and  "finui"  i.s  now  paN.sinj^  into  tlio  haiid.s  <if 
incorporutod  fompanioa,  witii  lar^'e  oapital  sto<'k  and 
highly  extended  operations.  This  is  praetionl  ovidonco 
that,  ill  Hpitfl  of  some  drawbacks,  tho  cost  to  ibo  om- 
jdoyor  of  oath  unit  <»f  product  i.s  less  where  prodociioii 
is  on  a  largo  .scale  tliaii  where  it  i.s  on  a  small  one, — 
provided  only  the  maiiagcmont  be  in  coiiipotonl  liamN. 
Men  who  have  demonstrated  their  ability  to  comluct 
largo  enterprises  sueoessfully  are  mui  b  in  demand  as 
nmnngers,  and  are  aide  to  obtain  for  Ihemsolvos  <*iilarios 
which,  a  century  ago,  would  have  Hcoinod  falmlous.' 
lie  now  HyHtem  fioenia  to  In?  (.'specially  applicable  to 

'  In  lliu  CISC  of  I'oriiorutiiiiiH  wliosc  lnisiiu'sw  Is  I'mnluilcd  by  iiirnl 
nmimj{tTM,  with  or  without  ii  board  of  directors, 'tlic  i'oni|i:iiiy  in  tliu 
real  I'tiiployer,  slnco  It  BiipiillcH  the  HavliigH  und  tiiki-s  (lie  risks  of  tho 
•■ntcrprlst!.  TIk^  hired  iniiii.iKrr,  us  siu'li,  U  Hliii|)ly  a  nkillcd  lalioitT 
ill  tln>  coiiiiiany's  sfrvicf.  'I'lii-  arrangement  (iueM  perrtoris  of  nieiiim 
tin  clnuuT  to  get  uioro  than  inon?  interest  for  their  Havings,  whiio 
VHcaping  inuMt  uf  tliu  iktmuiuiI  lubor  uf  inanageniint. 


^;! 


im 


iSilitiiiit   AVi))M/»iy. 


liulustriuA  tlint  \\mi\  lur^D  lUid  iii|>ital,  as  U  tho  cam 
iu  traiiH|)<)rtiitii>ii,  tniiiitig,  luid  iiioNt  kiiulH  of  uiiiiiufiict* 
urinu.  lVrlicti>H  tlu!  muHt  notu'nUi  cxuiuiilu  h  muu  in  tiiu 
aut)  of  niitniuilM.  A  gviufiitiDii  a^o  n  lailrniKl  «>xtullllln^ 
A  ciiiiiil-'  of  liiiiiilri<tl  iiiilfH  miH  <'iiiiHi(|i>rt'<l  a  lar^o  ono  to 
Im»  iimliT  iiiii-  iiiaiwi^{i'rih'iit,  Now  a  f«w  yruat  rdinpiiiiiim 
control  till-  liitlk  of  tint  railroad  laiHiufHH  of  tho  country, 
enrh  uf  thuni  owning  tlioiiNanth  of  niiluH  of  truck;  nnd 
thu  ]>roi'fMii  of  conMolidation  U  tttill  t{oing  on.  Tho  grunt 
iniprovuniuut  and  (-iuuipining  of  tlus  Burvicu  that  have 
ucfoini)aniud  tho  niovi'ini'nt,  though  mainly  due  to  othor 
eausi's,  ari!  no  doiiht  jiartly  to  Iw  aMcrihcd  to  tho  groalor 
t'thi'icncy  and  ocononiy  of  tho  now  |ilai).  It  •oouw  to  bo 
a  roul  induMtriul  iniprovoniont. 

Wo  may  noto,  in  paNHinj,',  that  tho  rocont  tendoncy 
towards  coinliinationH  and  "  trusts "  among  mining  and 
maitufacturing  comimnios,  is  a  vory  din'orcnt  thing  fr< m 
tho  niovt'inont  just  Hpokon  of.  Tho  onlargoinout  of  tho 
scalo  of  huwinoss  was  tho  rosnlt  of  un  oflort  to  losson 
coPt;  tho  truHt  is  iirimarily  dosignud  to  kocp  tho  prico  of 
nn  artiolo  highor  thin  it  would  ho  undor  frco  comtKjti- 
tion.  That  trusts  (h»  Hometimos  losson  cost,  by  provonting 
tho  wasto  «»f  savings  that  attends  ruckhtss  oompotition,  is 
no  jiroof  that  they  arc  an  improvomout  in  industry.  Frco 
coinpotition  has  some  drawbacks,  like  ovory  othor  human 
institution ;  but  it  ofVors  tho  oidy  suro  guarantee  that 
ovory  known  device  for  lessening  tho  cost  of  coninioditios 
shall  bo  faithfully  and  promptly  applied,  and  that  tho 
general  mass  uf  men  shall  liavo  tho  benefit. 


\,  as  In  the  emt 

kIh  of  iiiiiiiufiu't- 
)lu  in  Mvn  ill  tlx! 
iiilniiKl  cxtuiiiling 
cil  it  larj,'!)  oiu'  to 
Kiciit  compitiiioH 
H  of  tlui  ooimtry, 
[us  i)f  truck ;  niul 
ig  oti.  Tlu)  grunt 
lifvicu  tlint  hiive 
inly  iliu'  to  (itluir 
icil  to  tli«  gnator 
..     It  100111(1  to  bo 

roccnt  teiidoiicy 
iioiig  milling  nii<l 
'(•ntnt  thing  fri  ii< 
ilargt'iiicut  of  tliu 
1  ofl'ort  to  loHHon 

kt't'i)  the  iiritu!  of 
dur  froo  coinittiti- 
i)8t,  by  prevontiiig 
ss  coniiKjtitioii,  is 
in  iiulustry.  Frco 
viivy  other  human 
e  gimraiittio  that 
st  of  commoditiua 
iud,  and  that  tho 
lunetit 


12.  Uaoertatnty  of  Ind.viduAl  I'rofits.  —  It  in  cloar  frotii 
whiit  huM  Im'i'u  Huid  that  tiu>  |*r»iits  of  tlti<  iiidividiml 
t'lnployor  dii|N>ml  «»n  too  muny  vmiabli)  (d>*iiii'iitN  to  Ira 
fithtT  miifonu  i»r  I'l-rtain.  Tin-  biiHinc«N  man  han  to  Uinr 
tliu  riiks  i.f  iinbiHtry.  At  I'Vi-ry  t*U<\>  in  the;  rom|iIiratii| 
round  of  tiaiisactiiMM  hi'  carrit's  on,  lio  is  fat'i-  in  fmi!  with 
many  chanct'.s  of  1o,ih  as  well  as  of  gain.  Tho  wagi's  of 
thu  luhorer,  tho  inturiiHt  of  thu  Iciidur,  and  the  runt  of  tho 
landlord,  may  Im  nuttlod  uttd  sciMtriMt  in  ndvaiic*).  Thu 
oiiHiloyur  alonn  iriist  ndy  «)ii  Iuh  own  Nkill  and  goo«l 
fiirtuiii'  to  win  Iun  protlts  in  the  rosults  of  his  v«>ntiiri!, 
Whilu,  tlit-rufori',  w.ii,'i's,  intfresi,  ivnt,  and  uvi'ii  thu  aggro- 
gate  prolitH  of  thu  wholo  body  of  i'in|iloyurH,  arc  govi'mutl 
by  fairly  dulinit'  priiifiplus,  thu  )'i  .jits  of  thu  individual 
employer  must  nlways  rumnin  lai^'ly  a  matter  of  ehaiicus. 
It  is  impossiblu  that  certainty  or  nniformily  slmuld  char- 
ucturizu  thu  incomuH  of  men  to  each  (»f  whom  uvury 
chunge  in  modu.s  of  production,  in  thu  courses  of  trad*), 
in  public  tastu,  in  pricen,  every  .shock  co  crudil,  thu  acci- 
duiits  of  timuH  and  sonsoii.s,  may  bring  incruused  gains  or 
heavy  Ioshcs. 

Tho  yearly  profits  of  the  individual  arc  not  nuidu  at 
1  uniform  ratu  on  every  transaction.  They  arc  rather  a 
compound  result  reached  by  iniiny  HLiokes  of  liusincss, 
.sumu  of  them  highly  lu'ohtablc,  oilu.rs  indiireiunt,  and 
still  others  a  source  of  lo.ss.  Nearly  uvury  man  who 
operates  with  savings  has  his  g<  f.o  periods  and  his  bad 
periods.  At  times  ft.itunu  suoi'W  t(>  turn  against  him; 
many  things  go  umii'-.  and  losses   multiply.    At  other 


» • 

:  if 

i1 


■M 


a;?  ?^.  i' 


61 


2f.8 


rolitical  ICconovuj. 


times  most  thinys  turn  out  well  and  IiIh  gains  are  largo. 
Kach  man's  rato  of  jirolits  depends  on  the  proportion  of 
liis  vontures  that  turn  out  wtdl ;  and  this,  as  ovoryliody 
knows,  diltV'rs  widtdy  in  tho  case  of  dilloront  omployors. 

Wiiilt',  tlicii,  wo  Iiold  that,  under  free  comiietition, 
pnilits  tend  to  ei^uality  in  tho  various  industries,  wo 
nnist  not  infer  that  this  implies  a  tondenoy  to  eipiality 
in  individual  profits.  It  means  only  that  freedom  of  com- 
petition tends  to  keep  all  the  industries  ahout  equally 
promising,  as  fiekh  for  the  employer's  enterprise.  It 
remains  true  tliat  the  emi)h)yer  who  has  energy,  skill, 
foresiglit,  large  savings  and  good  fortune,  is  likely  to 
make  much  higher  profit  in  any  industry  than  the  one 
who  IS  deficient  in  any  of  those  respects,  even  though 
the  two  should  engage  in  the  same  business,  at  the  same 
time,  and  in  the  same  town. 

Note.  — It  may  seem  to  some  that  the  foregoing  treatment  makes 
too  little  of  tl'.e  connection  between  tho  individual  employer's  profits 
and  the  producliou  carried  on  by  hi.s  laborers  and  himself.  I  think, 
however,  that  all  who  consider  with  care  the  whole  case,  will  conclude- 
that  there  is  no  way  of  identifying  the  prolits  of  tin;  individual  em- 
ployer with  the  contribution  made  towards  the  product  of  industry  by 
his  laborers,  over  and  above  their  real  wages.  In  the  first  place,  as 
pointed  out  in  the  text,  their  real  wages  are  drawn  from  the  capital 
of  the  dealers  from  whom  they  buy  rather  than  from  their  own  em- 
ployer's aavlngs.  In  the  second  place,  though  wo  have  to  speak  of 
their  product,  as  if  it  were  something  made  by  them  wliolly  apart 
from  other  producers,  we  know  that  in  fact  they  do  only  a  part  of 
the  work  of  producing  a  eonnnodity,  since  they  use,  at  every  turn,  the 
results  of  other  men's  labors.  Their  share  in  production  is  consc- 
<iuently  merged  in  the  general  product  of  industry,  in  ways  that  defy 
distinction,  except  through  the  slippery  and  changeable  medium  of 
value. 


f 


InvqHnlilies  of  Profits. 


260 


is  gains  are  Inrgu. 
the  proportion  of 
this,  as  everyl)0(ly 
orient  erniiloycra. 
free  coiniiotition, 
us  inthjstrios,  we 
dcncy  to  iMiuality 
it  frocdoui  of  com- 
ics about  tMiimlly 
's  enterprise.  It 
lias  euorgy,  skill, 
tune,  is  likely  to 
stry  than  the  one 
ucts,  '3ven  though 
liness,  at  the  same 

DinR  troatinpnt  makes 
ual  onployi'i-'s  iiroiits 
and  himself.  I  think, 
ole  case,  will  cuncliido 
of  till.'  inilividual  cm- 
product  of  industry  by 

In  the  first  place,  as 
rawn  from  the  cai>ital 
II  from  their  own  em- 

\vo  liave  to  .s[)eak  of 
by  tliem  wliolly  apart 
ley  do  only  a  part  of 
use,  at  every  turn,  the 
I  production  is  conse- 
try,  in  ways  that  defy 
hangeable  medium  of 


II  may,  however,  lie  uruTd  that  liicir  pniducl  anil  llirir  real  wa,i;es 
may  he  con>pared  with  each  other  in  Icrmn  of  the  i|uuiitity  nf  lalxir 
ivpreseiited  hy  each.  That  is  no  doulit  true,  but  Ihi  cdiiipavison 
wciuld  f,'ive  u.s,  at  best,  their  coiitrilmtion  to  tlie  general  lua.ss  of  prolits. 
It  would  >;ive  no  eerlain  measure  of  their  own  employer's  pmlit,  .so 
Inn;;  as  prices  may  fail,  and  in  not  a  few  eases  do  always  fiiil,  of  con 
I'lirmini,'  to  the  iiuanlily  of  labor  each  article  represeiil.s.  A  man's 
laborers  may  do  as  well  for  him  in  every  respect  this  year  as  last 
.V(ar,  and  for  the  .same  rate  of  wa:;es;  yet  he  may  be  lo,-,iii;;  this  year, 
altlioni;!!  last  year  he  may  have  made  lar^e  profits.  If  the  prices  paid 
and  received  by  each  employer  always  followed  cost  of  production, 
or  even  employer's  cost,  the  problem  of  individual  prolits  would  bo 
vastly  simpler  than  it  is. 

If  we  include  in  employers'  cost  iuteresl  on  borrowed  savinj^s,  it 
may  seem  tluit  wc  ought  also  to  iucliule  the  self-denial  (or  al)stinince), 
throusii  which  employers  i)rovide  savings  of  their  own.  This  w<mld 
be  trui'  if  our  object  were  to  make  a  comi>lete  analysis  of  the  sacrilices 
employers  mu.st  make  in  getting  juinmodities  produced.  In  that  case 
we  should  have  to  include  the  jjcrsonal  labors  of  eiiiployehs,  as  well  as 
their  abstinence.  Hut  the  iib.stiiu'iice  and  the  peisonal  labors  of  the 
employer  arc  not  elcment.s  of  cost  in  the  sense  in  which  prolits  depend 
on  it.  They  are  rather  the  double  sacrifice  of  which  prolits  are  tho 
reward,  (/'ost,  in  the  sen.se  in  which  it  determines  jirolits,  consists 
wholly  of  payments  made  to  oDier  men.  The  uame"JMoney  Cost" 
describes  its  real  character. 


i0^ 


Ka 


.1? 


CHArTKli    XXI r. 


I 

I- 


11 


'ii 


ii 


INTEREST   ON   BORROWED   SAVINGS. 

1.  Nature  of  Interest.  —  There  arc  in  every  cdiimmnity 
many  persons  wlio  have  savahle  incitnio,  but  arc;  them- 
selves either  not  willing  or  not  ciualified  to  become  em- 
])loyors  of  labor.  On  the  other  hand,  there  are  always 
emjiloyers  who  see  ways  of  prolitably  extending  tlieir 
business  beyond  the  limits  their  own  savings  would  im- 
pose. Out  of  these  two  facts  has  grown  up  a  very  ex- 
tensive system  of  commercial  loans.  Under  this  system, 
persons  who  merely  save  are  enabled  to  obtain  a  i)art  of 
the  profits  of  industry.  They  loan  their  savings  to  em- 
ployers who  agree  to  n!\)i\y  the  loan  at  a  fixed  date,  with 
an  increase  called  Interest.  It  is  a  part  of  our  task,  as 
students  of  political  economy,  to  consider  how  the  rate 
of  interest  is  determined. 

On  the  side  of  the  borrower  iniorest  is  a  payment  for 
the  use  of  other  men's  savings.  On  the  side  of  the  lender 
it  is  chiefly  a  reward  for  abstinence.  Since  there  is 
always  a  possibility,  greater  or  less,  that  the  borrower 
may  fail  to  pay  l)ack  the  loan  promptly  and  fully,  the 
rate  agreed  on  includes  something  for  the  risk  the  lender 
runs,  —  a  sort  of  premium  levied  from  all  borrowers  to 
make  good  the  losses  caused  by  the  failure  of  some 
27Q 


'1.. 


t 


lutc'rcst  no  J'urt  of  nil  J'/'dJI/s. 


27T 


IVINQS. 

every  coiiniuuiity 
10,  but  ni(!  tliem- 
"(1  to  bocdino  em- 
tlu'rc  are  always 
'  exteiulin;^  tlieir 
iaviiigs  would  iiu- 
wu  up  a  very  e.\- 
Jniler  this  system, 
0  obtaiu  a  part  of 
iir  savings  to  eiu- 
a  fixed  date,  with 
irt  of  our  task,  as 
ider  how  the  rate 

;  is  a  payment  for 
side  of  the  lender 
Since  there  is 
hat  the  borrower 
tly  and  fully,  the 
he  risk  the  lender 
L  all  borrowers  to 
!   failure  of  some 


amniig  thcni  to  ropay  tlieir  Lians.  In  coinnion  usage!, 
th(!  name  of  Interest  ineludcs  both  liir  rcwanl  of  nbsti- 
nenci!  and  the  e()ni))ensation  fur  risk.  Kconomists  uku- 
ally  nistrict  the  term  interest  to  the  lirsL  alone.  It  does 
not  greatly  matter  whieh  use  of  the  word  we  follow,  so 
long  as  we  are  elear  as  to  the  existence  of  both  elements 
in  the  payments  made;  by  borrowers. 

The  rate  of  interest,  in  lla;  popular  sense,  dill'ers  eon- 
sidmably  to  dillerent  borrowers.    This  arises  nuiinly  from 
dillereiices  in  the  quality  of  the  security  given  f<ir  the 
repayment  of  the  Ljan.     It  arises  in  part,  however,  from 
diil'erences  in  the  form  of  the  loan,  the  period  for  whieli 
it  is  to  run,  the  provisions  of  law  regarding  it,  etc.     The 
more  completely  any  given  investment  meets  the  wishes 
or  the  needs  of  investors  in  these  respects,  the  lower  the 
rate  of  interest  the  borrower  needs  to  pa  v.     Thus   as 
I.etween    bonds    otherwise   equally   desirable,    investors 
prefer  those   that   have   long   to   run.     Again,  the   law 
singles   out  certain   bonds   for  the  investment  of  trust 
funds.    United  States  bonds  are  the  i)nly  ones  that  can 
be  lawfully  deposited  as  a  pledge  for  the  redem})tion  of 
National  Bank  notes.     Of  course  bonds  are  singled  out 
in  this  way  by  reason  of  the  superior  credit  of  the  issuers. 
Tiie  interest  on  them  would  therefore  be  low  in  any  case. 
r>ut  the  special   advantages   conferred  by  law  on  these 
bonds  enable  the  issuers  to  borrow  at  still  lower, rates 
than  they  could  otherwise  do. 

While,  then,  we  must  speak  of  the  rate  of  interest  as  if 
it  were  uniform  for  all  borrowers,  we  must  bear  in  mind 


M 


m 


i-.'V 


i 


:;;i»'« 


M 


r 


272 


I'ol  it  ifii  I  Ecu  mm  I/. 


it, 


lliiit,  ill  priictico,  liDrrowcrs  inxy  very  (UHcront  rates  uc- 
cDnliug  to  the  (quality  of  tho  iiHsiiraiicc  given  for  rcpiiy- 
inunt,  and  all  the  special  features  of  the  loan  in  each 


case. 


2.  Relation  of  Interest  to  Profits.  —  It  is  to  he  under- 
stood that  interest,  as  hiire  discussed,  relates  only  to 
payments  for  the  use  of  savings  actually  horrowed.  As 
to  savings  owned  hy  the  employers  themselves,  we  have 
no  need  to  say  'uy thing.  For  his  sacrifice  in  ahstaining 
from  the  nse  of  this  wealth,  each  employer  has  no  doubt 
the  prosiiect  of  a  reward;  Init  it  is  combined  when  he 
receives  it,  with  the  reward  of  his  personal  labor.  There 
is  nothing  in  the  nature  of  profits,  nor  in  the  process  by 
which  they  are  gained,  to  tell  us  how  much  is  ff)r  the 
abstinence  and  how  much  for  the  labor  of  management. 
As  well  seek  in  the  hewn  tind)er  for  some  sign  to  tell  us 
how  much  is  due  to  the  axe,  and  how  much  to  the  man 
wlio  has  wielded  it.  No  man  can  be  a  true  employer 
without  savings  of  his  own  as  a  basis  for  his  operations. 
If  it  be  assumed  that  for  these  savings  he  has  a  separate 
and  definite  reward,  called  interest,  there  is  at  least  no 
ground  for  assuming  that  this  reward  corresponds  with 
the  interest  lie  might  obtain  by  lending  his  savings  to 
other  men,  or  that  any  other  man  would  have  loaned 
him  the  amount  on  any  terms.^ 

I  Wages  and  profits  (or  outlay,  return,  and  difference)  are  quantl- 
tlus  defiuitely  niirrked  out  by  the  very  process  of  carrying  on  produc- 
tii>!i  by  nieana  of  liirod  li'bor.  But  interest,  considered  as  a  reward 
of  all  abstinence,  has  no  such  basis  of  determination.  It  i.s  merely 
inferred  that  because  employers  pay  such  and  such  rates  for  loans, 


«««a*w»-4^  »aM>*r^ 


(Ull'i'rent  rates  ac- 

20  given  (or  ropay- 

tho  loan  ill  each 


It  is  to  lu!  under- 
ill,  relates  only  to 
ally  borrowed.  As 
leuiselves,  wo  havo 
jritice  in  abstaining 
iloyer  has  no  doubt 
combined  when  he 
sonal  labor.  There 
r  in  tho  process  by 
w  much  is  for  the 
)or  of  management, 
some  sign  to  tell  us 
I  much  to  the  man 
be  a  true  employer 
for  his  operations. 
;s  he  has  a  separate 
here  is  at  least  no 
d  corresponds  witli 
ling  his  savings  to 
would  have  loaned 


i  difference)  are  quantl- 
3  of  carrying  on  produc- 
coiisidered  as  a  reward 
•iiiination.  It  i.s  merely 
id  such  rates  for  loans, 


Interest,  so  far  as  actually  determiuiite,  is  miiinly  a 
reward  of  abstineuco  .separated  from  tiio  labor  and  risks 
of  employment.  Interest  in  this  souse  i.s  not  a  universal 
element  or  share  in  all  profits.  It  is  simply  a  payment 
made  by  employers  for  the  use  of  savings  in  addition  to 
their  own;  the  amount  of  the  payment  being  fixed  in 
advance,  and  due  to  tlie  lender  in  each  ni.se,  whether 
the  loan  has  been  a  source  of  gain  or  of  los;,  Ui  tiie 
borrower.  Of  courr.e  there  is  a  relation  Ijetwotm  the  rate 
of  int'-rest  employers  will  agree  to  pay  for  loans,  and 
the  profit  they  expect  to  mnke  by  means  of  them.  In- 
terest can  never  be,  for  long,  as  high  as  the  general  rate 
of  profit.  How  far  it  may  ordinarily  stand  below  the 
rate  of  profit  depends  very  much  on  the  disposition  and 
inclinations  of  tho.se  who,  in  each  country,  own  the  mass 
of  the  general  savings.  If  they  be  much  averse  to  active 
business,  they  may  forego  a  large  part  of  the  profits  of 
capital,  for  the  sake  of  the  ease  and  supposed  dignity 
of  living  without  a  commercial  occupation.  If,  on  the 
other  hand,  they  be  well  inchncd  to  the  stir  and  enter- 
prise of  business  life,  the  rate  of  interest  may  ordinarily 
stand  well  up  towards  the  late  of  profit.  But  we  may 
safely  assume  that  it  can  nowhere  be  always  equal  t,i  it. 
3.  Interest  Depends  Immediately  on  the  Demand  and 
Supply  of  Loanable  Savings.  —  Interest  being  a  payment 

they  gel.  tlu  •sijue,  and  only  the  same,  retunis  for  tlieir  own  oriKinal 
•saving  lMr,in«berins  tliat  it  i.s  hv  means  of  his  own  saving  vliat 
ilic  et>  .uoyi.T  iifts  himself  out  of  the  condition  of  a  wage-i-arner,  and 
makes  the  gaiiis  of  an  employer  possible  for  himself,  we  easily  see  the 
fallacy  of  the  inference. 


HM 


274 


J  hi  it  kit  I  Km  no  my. 


Jixed  liy  ngnKiint'iit  Itetwocii  burritwi-r  uml  Irinlt'i',  it  is 
largely  j,'()Vorm'tl  Ity  tho  huiik!  iniiuiplt's  kh  tlio  [»ri''u  of 
a  comnnuUty.  Thciv  is  n  curnjiit  nr  markot  nitu  tk'|icii(l- 
iiig  (111  the  HUpiily  of  «nviii;,'s  nlli;riiif^  for  loan  at  tlic  iiKt- 
iiiciit,  as  I'oiniianfd  with  tho  di'iiiaiKl  for  liaiis.  Then.'  is 
al.sn,  for  each  country  sind  tiiiu',  Hoiiu'tliiii},'  liki*  a  natural 
rntc  of  interest,  to  which  the  market  rate  lends  to  return 
after  every  Ihietnation.  The  market  rate  tends  to  he 
Hiich  as  to  make  the  demand  from  day  ti>  day  e(iual  to 
the  existing'  supply.  The  natural  rate  is  that  rate  which 
causes  people  to  save  for  loan  as  mucli,  and  only  as  much 
as  there  is  a  demand  for  mt  that  rate.  The  market  rate 
has  reference  to  some  particular  condition  or  case  of  sup- 
ply nnd  demand.  The  natural  rate  ha.s  reference  to  the 
strength  of  the  saving  spirit  among  non-emiiloyers  who 
have  savalde  income,  and  to  the  permanent  or  average 
demand  for  loans. 

The  amount  saved  from  month  to  month  hy  non- 
employers  is  fairly  constant.  Many  of  them  save  without 
reference  to  the  interest  they  can  obtain.  IMost  of  the 
saving  "  for  a  rainy  day,"  for  old  nge,  for  children,  etcx,  is 
probably  of  this  character.  Some  niay  even  save  more 
btrenuously,  after  what  pronuses  to  be  a  lasting  decline 
of  interest,  than  they  did  before;  since  the  lower  the 
rate  the  larger  the  princijial  necessary  in  order  to  yield 
a  given  income.  Yet  it  is  ren.sonable  to  suppose  that 
m)n-emidoyers,  as  a  body,  are  stimulated  to  save  more 
copiously  by  a  high  rate  of  interest  tluui  by  a  low  one. 
To  the  nmltitudes  of  people  who  have  no  very  definite 


^mm 


Dfivmnd  /ur  Lunns  hujhijf   P'lriable, 


275 


r  ;u\(l    Icudor,  it  in 

IcH    ilN    till!     |>I'i''l!    of 

iiirkiit  riitu  ik'iM'iHl- 
for  Idiiii  sit  llic  iiMt- 
(ir  Imiiis.  TliiTi.'  is 
liiiig  likn  a  iialiiral 
all'  tt'iiilH  til  return 
rate  ti'iuls  to  lie 
lay  to  (lay  tMjual  to 
>.  is  that  rate  wliidi 
,  ami  only  as  iniicli 
Till!  market  rati; 
tion  or  ca.su  of  suii- 
las  reforcnco  to  the 
non-(;mi)loycrs  who 
inanuut  or  average 

.0  month  by  non- 
them  save  withont 
itaiii.  Most  of  the 
for  children,  etc.,  is 
ay  (!ven  save  more 
le  a  lasting  decline 
ince  the  lower  the 
ry  in  order  to  yield 
lie  to  suppose  that 
latcd  to  save  more 
than  by  a  low  one. 
ve  no  very  definite 


nbject  to  »nvo  for,  except  the  general  one  of  increasing 
their  income,  the  dillereiicc  between  .sr-x  jior  cent,  and 
I'tiur  per  cent,  miiy  be  deei.sive.  'I'ho  ever-i>re.sent  tomp- 
latioii  to  spend  nci'dH  to  be  met  by  a  strong  counter- 
acting inilnence;  iini\  the  higher  the  rate  of  interest  on 
loans  th.!  stronger  the  motivi;  for  denying  one's  self  the 
inimediate  enjoyment  of  one's  savalde  income. 

We  may  therefore  assume  that  when  the  market  rate 
of  interest  rises,  the  supply  of  savings  olfering  for  loan 
will  increase;  and  that  when  interest  falls,  the  reverse  will 
liapipcn.  Changes  in  the  supply  of  loanable  savings  tend, 
ill  turn,  to  react  on  the  rate  of  interest,  in  the  maimer 
already  familiar  in  tin;  ca.se  of  maiket  prices. 

4.  Variable  Character  of  the  Demand  for  Loans. —The 
olijects  for  which  loans  may  bo  desired  are  very  numer- 
ous ;  but  they  may  be  classed  under  two  general  heads : 
1  amely,  commercial  and  non-comna-rcial.  Commercial 
loins  are  thiLse  made  by  bujjues.s  men  with  a  view  to 
profit.  Non-commercial  loans  arb  tho80  ruise'l  by  gov- 
ciiiments,  cities,  and  private  iialiviiluals  for  special 
olijects,  such  as  the  prosecution  of  a  war,  the  construc- 
tion of  water-works,  the  paving  of  streets,  the  building 
of  houses,  etc.  The  usu.il  motive  in  borrowing  of  the 
latter  kind  is  to  spread  the  burden  of  the  cost  over  a 
number  of  years,  instead  of  taking  it  wholly  out  of  tho 
ini'ome  of  any  one  year. 

The  call  for  non-commercial  loans  is  subject  to  very 
Midden  and  extensive  changes.  The  breaking  out  of  a 
war  between  two  great  nations  increases  it  enormously. 


J  Mi 


i  I 


itlift 


I 


:l 


■  I 


H. 


f 


276 


Ihlitiml  Krunomy. 


Tlif!  rc,stomti(tn  of  penco  cauHt-s  .".!■  i<iiiiilly  suddt^u  nnd 
cxtoiiflivt!  ilt'creaso  of  tho  dKiuaiicl.  At  tiiiu-s  govorii- 
iiionts  and  c.itioa  nro  soi/.od  with  ii  fcvciiHh  activity  in 
tho  coii.stnictioii  of  jiuldic  works;  at  other  Unit's  they 
art'  ovtTtiikcn  hy  a  sjiiiit  of  ci-ononiy,  and  Iar<,'o  (!X])('ndi- 
tnrcs  by  way  of  loan  aro  avoided.  Tiiest!  (•hanj,n'.s  in  tiie 
non-coninieri'ial  dennind  for  luuus  huvu  striking  clVucts 
on  th(!  rato  of  interest. 

IVriods  of  hiryo  borrowing,'  onj^lit  to  he  foUowed  hy 
periods  of  chiht-payinj,'  on  a  largt^  scale,  lint  nnfortu- 
nately,  the  jmyment  of  jMihlic  didits  is  a  practin!  V(;ry 
little  in  \u'^\w.  It  tails  for  a  degnie  of  I'ortitnde  which 
governing  hodies  ransly  ;;;;ssess.  Ohviously  the  payment 
of  pnblic  debts,  wherever  it  do«8  occur,  has  an  eiroct  on 
the  rate  of  interest  exactly  tho  reverse  of  that  produ(;ed 
by  the  public  borrowing.  The  bond-holders  whoso  bonds 
are  paid  oil"  arc  \uider  the  necessity  of  finding  new  bor- 
rowers. This  throws  on  the  loan  market  a  mass  of  old 
savings  in  addition  to  the  amounts  coming  forward  from 
current  saving. 

Tho  di'niand  for  commercial  loans  depends  on  the 
condition  of  business;  and  this  os  we  know  is  highly 
variable.  When  the  product  of  industry  contains  the 
right  proportion  of  (!ach  article ;  when  the  general  level 
of  prices  acccrds  well  with  the  supply  of  currency,  and 
when  ninn<!y  wages  arc  in  such  ratio  to  prices  that  profits 
are  high,  we  have  the  situation  known  as  "good  times.' 
At  such  a  time  there  is  a  .strong  demand  for  commercial 
loan*.     Business  men  are  able  to  see  many  openings  for 


I 


riiuiilly  Htulilun  mill 
At  tiuu's  ytivf'ni- 
fovcrisli  nativity  in 
at  otlior  times  they 
',  and  liii'f^o  ((XjKMidi- 
I'iifst!  clmngt's  ill  tin' 
uivu  striking  cllucls 

t  to  l>o  fiillnvv(i(l  liy 
iciilc.  r.iit  unfoltii- 
s  in  11  i»riiflic(!  v(!ry 
li  iif  fortitude!  wliirli 
ivif)U,sly  tli<'  ]iayim!iit 
icur,  has  an  elVoct  on 
I'.si!  of  tliiit  produdod 
lioldors  whoso  hoiids 
of  finding  new  Imi- 
iiarket  a  mass  of  old 
turning  forward  from 

ms  depends  on  tho 
we  know  is  highly 
idustry  contains  the 
icn  the  general  level 
)ldy  of  currency,  and 
to  prices  that  profits 
)wn  us  "good  times.' 
iiand  (or  eonnnercial 
;e  many  openings  for 


IntertHt  Ifiijh  in  rime  of  "  (h-mn. " 


277 


I  III-  piolitalde  list!  of  Havings,  and  accordingly  are  eager 
to  extend  their  operations.  I'nder  the  strong  demand 
for  loans,  interest  rises,  and  ouvlngs  increase.  Al.sn,  the 
Itiinks  e.xtt'iid  their  deposit  loans  and  hank  currency 
iiu'rea.ses.' 

How  long  this  situation  may  hiMt,  and  why  it  must 
I'ome  to  an  end,  are  <[uestir)ns  to  which  no  very  simple 
or  satisfactory  answer  can  ho  given.  I'rolmhly  no  two 
cases  work  out  quito  alike,  for  there  are  many  ways  in 
which  the  highly  cruiiplicnted  arrangt^ments  of  civilized 
iiiilustry  may  lujcome  deranged.  In  the  various  exten- 
sions of  (dd  enterjirises  and  starting  of  new  ones,  there 
is  always  a  danger  that  the  due  proportion  of  commodity 
lo  commodity  may  not  ho  preserved.  There  is  a  danger 
that  wages  may  he  raised  to  such  a  level  as  to  leave  no 
siidicient  margin  for  profits.  There  is  a  danger  that  the 
iidvancc  in  prices,  resulting  from  the  increase  of  hank- 
I  urrency,  may  give  rise  to  excessive  hringing  in  of  goods 
t'lom  other  i)laces,  and  that  an  outward  drain  of  specie 
to  pay  for  them  may  bring  the  banks  into  ditliculties. 
There  is,  finally,  and  above  all,  a  danger  that  something 
limy  occur  to  shake  the  general  confidence,  —  especially 
the  confidence  of  the  banks  and  other  lending  institu- 
liniis  in  the  ability  of  business  men  to  rei)ay  their  loans 
:iL  maturity,  if  any  (jf  these  things  happen,  the  pro.s- 
pcrous  course  of  allairs  usually  comes  to  an  end. 

'  Wore  it  not  for  tlie  iutiflciul  iiicrunae  of  loanable  savings  by  tlm 
'  xiiansion  of  banit  deposits,  tin;  rate  of  interest  would  ri.se  higher  at 
tlitse  Hcauoim  than  it  does.    (See  Cliap.  XV.,  §  7.) 


•^Jtf* 


•'7S 


fhlitirft   fJf'ofUim^f. 


n 


si' 


W'v  liuvo  wen  luiss  liii;^<'l)  Im-^iutfKH  in  t<>ii(lucti'(l  on 
crtjilit  N«i\v  tln!  Hnsit  •'«miIivh  of  <T»Mlil  »ru  tlif  ImiikH, 
Wlicii  iimmifiictiin-rs  ur  wliuh'Miili'  Hn'rchimtH  sell  j^ikmIh 
on  cmllt,  thi')'  u.Hunlly  ^I't  thu  tintcM  nr  liills  Dwy  trtkt*  nf 
llir  liiiycrs  (lisciiuittMl  at  tin-  l»aiiks,  Willi  tlu'  u\iwy 
lliiis  (pldiiiiH'tl  tiny  iiu'rt  tln-ir  nwii  In    iim'hs  oliIi;,'iili<>iis. 

If  tlio  liaiiUs  licj^iii  111  tiirliiil  their  iliscnimiH,  iwd  im- 
IMirtinit  vi'Hiilts  fiillow.  Tilt!  umn  who  fail  to  g.a  lnans 
iiuist  at  oiii't!  flit  ilnwii  tlii'ir  inisiiit'HH  oju'ratioHH,  —  tiiry 
iniiyuvon  luivu  to  »usj>ciul  Itu.siiioHH  alto|,'t'thcr.  Scf.iiully, 
thu  vnlunit'  of  liank  currniiey  hofoiiit'H  rt'tliu-ud,  uiid  thorn 
is  no  lon^'t-r  <'iioii},'h  cnrrfiicy  to  match  tlio  uxistiiif,'  scalt; 
of  jirici's.  TliH  Halo  of  ^jim.iI.-*  lt('i,'iu.s  to  slackoii.  In  a 
word,  tilt!  season  t»f  jirosperity  is  over. 

5.  Interest  in  Times  of  Commercial  Crisis. — The  extent 
and  violeni-'e  of  the  revulsion  that  follows  depends  on 
tlio  circumstances  of  tjaeU  case.  Wliero  the  expansion 
of  cretlit  has  hcen  excessive,  and  then!  has  heen  much 
Bp(>culativu  tradiiij:,'  based  ui)on  it,  many  failures  are  sure 
to  oci'ur,  and  the  revulsion  may  tlevelop  intti  u  "  panic." 
Wlit're  th(!  over-uso  of  credit  lias  hoen  less  extremo,  the 
immcdiato  tiilects  may  not  pass  beyoinl  a  few  failures, 
a  geiu!rul  check  to  liusiness  activity,  anil  ii  prcvailinj,' 
distress  among  business  men. 

In  either  case  the  liist  elfect  a  business  revulsion  has 
on  the.  ilemand  for  loans  is  greatly  to  increase  it.  busi- 
ness men,  who  have  counted  on  their  ortlinary  "cidlec- 
tions"  for  the  moans  to  meet  their  current  oliligations, 
suddenly  hntl  this  resource  failing  them.     They  arc  com- 


I1NH  Ih  «')iiiiluoti'(|  on 
roilil  art!  tlu'  liaiikH, 
nurchiititH  sell  j^immIh 
(ir  l»ill.s  tln*y  trtktt  uf 
Willi  till-  iiioiif)' 

iiM'SS  nhli;,'iiliiiiis. 
r  ilisniuiilH,  two  iiii- 
li(t  fail  tit  gift  loans 
(H  njioratioHH,  —  tlify 
ltoj,'t'tlnjr.  Secondly, 
•s  ivdufotl,  ami  ihrw. 
f'h  tlio  existing,'  scali! 
IS  to  Hhickuii.     In  a 

VVT. 

Crisis. — The  extent 
folluvvs  depends  on 
SMiero  the  expansion 
liere  has  heen  much 
any  failures  are  sun- 
keloj)  into  a  "  panic." 
uMi  li'ss  extreme,  the 
yond  u  few  failures, 
ity,  and  a  prevailiii},' 

isiness  revulsion  has 
to  increase!  it.  r»usi- 
oir  ordinary  "coUec- 
r  current  olili<,'ations, 
hem.     They  are  com- 


fnlvniit   /-•»«•  ill,  "  Dull    Timin." 


pelk-d  to  mH'k  ill  iNtrrowin^j  the  uteuhH  of  inaintitinhi^ 
llieirt'  s«dv«!ney,  Soriiu  men  also,  who  have  money  enough 
lo  meet  their  present  ne^'ds,  are  apt  to  hecome  appris- 
iiensive  at  such  a  lime  lest  they  may  fail  to  ^'et  the  meaiin 
(4  meetini^'  futni'  uldiyiitioris.  They  iht'refore  try  to 
horrow  now  eiiough  to  make  the  future  8ecure. 

Thtjs  heW  and  tmmt  i>r  less  nervous  demand  for  lonun 
is  very  ilill'erout  from  the  ordinary  commereial  demand. 
The  Mhject  til  view  is  not  to  make  iitotit,  hut  to  av(!rt 
liusinoss  ruin,  The  deinand  is  accordingly  intense.  In 
time  of  jiaiiio  it  hecomes  hciidlong  and  unrer.soninj,'. 

While  the  demand  for  loans  is  thus  nuu'c  ui^ent  than 
usual,  the  supply  is  usually  much  8nui!ler  than  usual, 
The  great  lending  institutions,  having  stretc'lied  their 
lentliiig  power  to  its  utmost  limit  in  the  "  Hush  "  time 
just  [ireceding  ho  troulde,  iiave  little  power  to  uitl  the 
husiness  coiiuiiuiiity  with  fresh  In,  ns.  There  is,  therefore, 
a  gii.it  dearth  of  loamihle  savings.* 

>  Till!  Inw  preliiliits  our  Nntioiml  liank.i  from  f:p-antiiiK  new  iminit 
wlii'iifYiT  tlie  resiTVu  falls  bflow  tin-  lawful  rillo  to  tlu'  ilciioslirt 
['iH  iHT  opiit.  f>'t'  city  liaiiks].  'I'IiIm  nstrlftidii  tciiils  to  uunnivali) 
tlu«  sidliUidii  ill  lliiii'  (if  (.'lisis,  hcciuiHe  it  forlilds  tlie  banks  to  ilo  thu 
only  thins?  thut  cnn  restore  ceiilld  'iioe  aiul  wave  the  Imsini.s.s  foiiiiiiu- 
iilly  I'hm.  wi.lf-sjiri'iiil  ruin.  In  the  criMis  of  187'  the  si'vcrt'sl  hinco 
the  National  Hank  Act,  was  ailopti'tl,  the  liiiikN  .if  New  York  cciin- 
liini'd  their  rertourocH  and  hroki'  the  law,  — granting  new  loans  when 
thfir  joint  ri'.sorve  was  Ics.s  than  half  of  the  lc;;al  rt'iinininfiit.  '\'Uo 
Hank  of  Knjjiand,  which  is  the  cintro  of  the  Hnj^llsh  hankinj,'  Hysieni, 
has  learned  hy  lon^  cxperieiici!  that  thu  best  way  to  iiniet  a  panic  Is 
to  lend  more  freely  than  at  ordinary  times, —  ebarijin;;,  li"\\'  ver,  liiyh 
rates  of  interest.  This  cour.su  it  follows  freely,  not  liein-  nnder  any 
le^'al  restriction  an  to  lt«  ruservv',  nor  as  It.  thu  rato  of  interest  that 


-S 


JK- 


JUUicitl  Semi»m§> 


>\, 


i 


i 


Tliont  In  nn  n^slKimMn  limit  to  tlm  ritio  of  tho  nt«  ol 
iiili'ri'Hi  ill  mull  u  Miluutiuii  iw  IIiIh.  M«n  Imvo  bwm 
known  to  i«iy  two  jwr  c«iit.  o  duy  for  short,   li  it.n  at, 

Htll'll    tilltUM. 

WIk'Ii  th«  crisid  in  ptiHt,  the  mto  of  iiitcront  sulTorH 
a  Hhiirp  <li!<liin!;  ami  in  thn  ju'ritnl  of  (IfjiU'SHion  tlint 
always  follows  n  •■oinnuTriul  iwuImom,  iiitiT.'st  in  low. 
It  in  a  tiiiio  wiii'ii  laiHint'MM  ii.*'n  lin-l  it  vory  diiruult  to 
turn  MaviiigH  to  prolitalilo  account,  It  in  a  tinio  of  f.iiliiiK 
jiricoB,  owinjij  to  thf  tliuiini  'm'<1  -..poly  vf  mian).  (S'"' 
('liai'tcr  XIII.)  Sali'H  of  (^oods,  ('iiii.vriUy  '♦iiU'h  on  cro  lit, 
nro  fowor  than  iHiforo  tho  crisin;  aril  thirt  nioanM  that 
tlu'ro  ari)  ft-wer  MIIm  ami  notos  olVcrini;  to  the  iiiuik,H  for 
(liHcoiint.  LouMiltlt!  Huviii<{s  aiu'umulatt'  on  tiu'  liaml.s 
of  tho  jjn-at  Icmlcrs.  In  onl'^r  to  attract  ItorrowerH,  ttu! 
rnto  of  intoruHt  has  to  hv.  placed  very  low,  i.nd  even  this 
usually  failM  of  complete  miccess. 

These  periiKls  of  depression  are  in  ♦urn  suceeede-l  hy  a 
time  .)f  increased  confidence  and  revWii.g  credit.  I'ri'ea 
a;,'ain  come  into  accord  with  the  supply  of  iiioiie.v,  and 
money  wa^cs  witli  both.  A  promise  of  r  jasoi.iddt!  profits 
again  pn-siMits  itself  to  tho.se  who  have  managing  Hl<ill 

limy  lawfully  Ik-  clmi-nod  for  l(.aa«.  Tlio  lil?li  n.ve  dmckii  merely 
I1ITV..IW  ln.rri)wiiiR.  Till-  iitt.inpt  ho  (•oninioni)  inadf  ii  olil  iIiiu'h, 
iiimI  Htlll  iimili'  in  Kdiiic  of  nar  Stiitrn,  t..  krcp  down  tli  r'\U>  of  liiUr.'Kt 
\,y  law,  liuH  iicv.'i-  liii.l  llic  <ff<rt  of  i)r.>tc<'tlnp;  tiorrowi-n,  Tho  n-mill 
iM  iilwnys  to  nmkc  tho  ruU'  liiKlicr  In  lUw  of  ironbli-  tliaii  It  would  im 
if  nolipil  limit  ixl«t(il;  for  ttic  Icndir  cliarKi-s  more  on  iw.ountof 
111".  rUk  lio  runs  in  violiilln>:  the  law.  All  hucIi  laws  arc  foolhh  nnd 
InjuriouH,  — as  foolish  and  injurious  as  the  kindred  attcinpt  wmi'tinien 
niado  In  fornur  aK<'H,  to  rcgnlato  prlcf.s  liy  law. 


A  »  t"i'<  i 


iiw  lit  thu  rata  u( 

Bliiii  hiivo  b««n 

r  short   1<  tt.n  at. 

f  iiitcront  fiulTiTH 
f  (h't'ii'MNioii  llint 
I,  iiitiT.'st  in  l'»\v. 
it  vt;ry  tlilluult  to 
s  n  tiiiio  of  r.illin({ 
)r  if  inuiny.  (S(»« 
\\y  m:iI('h  oil  crolit, 
i  thiH  iiuMitiH  that 
f  ti>  till"  iiiuikH  tor 
itc  oil  tiu'  IttuidM 
net  ItorntwefH,  thu 
low,  liud  cvun  this 

rn  succpedtvl  l)y  a 
ii.g  credit.  Vt'im's 
'ly  of  inoiH'y,  ftiul 
f  r?ttsot.iildo  jirohts 
vu  iinnaj^iiig  Hkill 

[\\  Ti.ie  diPckH  merely 
1}  iiiailf  II  olil  tlincH, 
)svii  til  nitc  of  liiUrt'Ht 
lorrowi'r  (,  Tho  rpmill 
(lulilc  tlian  It  v^niilil  1)« 
•s  iiiDrti  I  (11  III  •ount  of 
li  liiWM  lire  foolhh  nnd 
Ircd  attfiiipt  wmotlniM 
iw. 


I 


<*iiL 


IMAGE  EVALUATION 
TEST  TARGET  (MT-3) 


1.0 


I.I 


1.25 


*"  ill  2  8     12  5 

m^     lllll^£ 

lis    '""^ 
'''     II'M 


1.4 


1.8 


1.6 


Photographic 
Sciences^ 
iruoration 


23  WiT  MAIN  STREET 

WEBSTER,  N.Y.  14S80 

(716)  872-4503 


qv 


.3^ 


*> 

<• 


t#V- 


^^ 


a^ 


4 


i 


CIHM/ICMH 

Microfiche 

Series. 


CIHM/ICIVIH 
Collection  de 
microfiches. 


Canadian  Institute  for  Historical  Microreproductions  /  Institut  canadien  de  microreproductions  historiques 


K/;(a 


Tntereat  and  JVagea. 


281 


;iiul  capital.  Tho  revival  of  iiulustry  means  an  increased 
demand  for  loans  aj»d  a  rise  of  the  rute  of  interest.  It 
remains  high  until  a  new  revulsion  overtakes  the  business 
world. 

We  thus  sec  that  the  rate  of  interest  moves  in  cycles, 
following  pretty  closely  the  profits  (jf  employers.  When 
profits  are  high,  interest  is  high  also.  When  profits  fall 
oil",  interest  falls  too. 

6.  Sig;nificance  of  the  Prevailing  Rate  of  Interest.  — 
Tlie  fact  that  the  rate  of  interest  follows  S(»  closely  the 
lips  and  downs  of  business  profits,  suggests  that  there 
is  a  connection  between  the  ordinary  rate  of  interest  in 
ii  country  and  the  general  condition  of  its  industry. 
Tiie  ordinary  demand  for  loans  is  a  good  index  of  the 
ordinary  rate  of  profits.  If  the  demand  be  strong  enough 
to  sustain  a  high  rate,  we  may  safely  infer  that  employ- 
ers are  making  high  profits.  We  caii  also  infer  that,  in 
comparison  with  the  productiveness  of  labor,  real  wages 
lire  low  in  the  country.' 

This  does  not  mean  that  a  high  rate  of  interest  is,  in 
itself,  a  cause  of  high  profits  or  of  low  wages.  Wages 
depend  on  the  volume  of  savings  offered  for  labor,  —  no 
matter  by  whom  offered  nor  at  what  rates  of  interest 
some  part  may  have  been  borrowed.  Profits,  in  turn, 
lire  the  excess  of  product  over  wages,  and  this  also  is 
uiiinHuenced  by  the  rate  of  interest.  A  high  rate  of 
interest  is  merely  a  sign  and  a  result  of  the  fact  that 

'  It  must  bo  remembered  that  a  rise  of  prices,  without  a  corre- 
spouding  rise  of  money  wages,  means  a  decline  of  real  wages. 


■    V  ^ 


Ditifiiiil  Hcttnoinff, 


siiviii^s  wiv  siiiiill  ill  |>rii|ini'ii(iM  in  tin-  iiniiliii'l.  (if  iiiiliis- 
(IV.  Kllltln'r,  it  tells  us  liutliiiif,'  iim  In  (lie  vnlu.lKi  itl' 
saviiij^N.  imr  us  In  lln'  |iri>ilui'livoiii'SM  tif  !:ili(ir  in  tlic 
nlisdliitc  sdisc.  Iiitfivsl,  may  lie  lii},'li  wlifir  iinliistry  is 
lii},'lily  iiicilnclivc,  Immiuish  tlif  spirit,  of  siiviiiK  is  wcnk 
iiiiitiii;;  tlmsi'  wlht  liavc  savalilii  iiicniiK!.  It  may  nhn  \>i' 
liiuli  wlit'in  tilt'  |ii'inliictivi!ii('SH  (if  lalior  is  low,  Ikm'iiiisi! 
Iinwcvcr  s(iiiiij4  (lie  iiiclinalinii  tn  save,  the  iimouiit  (if 
savalilf  iiicnmc  is  small.  In  tlm  ii:i((  rww,  liif,'li  interest 
and  liij^li  waj^i'H  prevail  side  liy  Mr;  in  tli(!  other  case 
liij,'h  interest  and  low  waj^es, —  waj^es  lieing  Hiioken  of 
in  tln^  alisnhite  sense  in  hoth  cas 'h. 

The  rate  of  inUtnjst,  then,  tells  lis  nothiiif^  about  the 
aetual  level  of  wa^es.  IWit  it  does  eonvey  aa  intiiiui- 
tioii  as  to  one  of  the  factors  on  which  waj^es  depeiul, — 
iiainely.  the  slren^^th  of  tlu;  saving  spirit  among  the 
owners  of  wealth.  ()tht>r  things  remaining  unchanged, 
a  decline  of  the  ordinary  rate  of  intiM'est  in  a  country 
implies  a  rise  of  wages  ;  for  it  implies  a  greater  readiness 
to  .save  on  the  juut  of  those  who  have  savable  income. 
The  rise  of  wages  and  the  decline  of  interest  are  both 
eil'eets  of  the  same  cause ;  namely,  the  increase  of  saving. 
Other  things  being  etiual,  then,  a  low  customary  rate  of 
interest  indicates  a  condition  of  things  more  favorable 
to  the  laborers  than  a  high  customary  rate  does.  For 
employers  the  indication  is  reversed.  Though  they  pay 
low  rate."?  for  what  they  borrow,  the  situation  implies 
that  they  are  making  low  gains  on  all  the  savings  they 
invest,  —  their  own  as  well  as  what  they  borrow. 


Intriritl  mul  Ihi-  S'lt/i/i/i/  of  hfimri/. 


2fi3 


|ir(ii|iii'|,  of  jikIiis- 

til     till'    Vlilll.lKt     III' 

■1  of  !;ilii)r  ill  till' 
wluTi!  iiiiliiMtry  is 
•  if  Hiiviii^  is  weak 
I'.  It  limy  uIho  \»\ 
iir  is  low,  lioniusc 

Vf,    till!    lUIIOIIIll   of 

ciiHo  liif,'Ii  iiitrrcst 

in  tli(!  otlior  casts 

■s  Immii}^  HiKikon  of 

iioUiiiij;  alxiut  tlio 
(Miiivtsy  (la  iiitiiiiii- 
\  Wnf^OH  (loiKiiul, — 
spirit  (itiiong  tlin 
liiiiiiiii^  iiii(!liaiif,'('(l, 
(Mttst  ill  a  country 
a  greater  rondiiioss 
vc  savablc  income. 

I  interest  are  botli 
increase  of  savinj,'. 
customary  rate  of 

if;s  more  favoraMe 

ry  rate  docs.     For 

Tliou<;li  they  pay 

!  situation    implies 

II  the  savings  they 
hey  borrow. 


7.  The  Rate  of  Interest  does  not  Oepenu  on  the  Supply 
of  Money.  it.  is  iiiiimiioii  ti.  siippo.si;  that  a  lii^'li  rat<!  of 
iiiti'irst  (liiioti'H  a  Hcanity  of  moniy,  ami  a  low  riit<!  (in 
aliiiiKluiico  'if  it.  This  viiiw  is  frtitiroly  firniii  hum,  as  I'lcro 
is  MO  iiecfssary  coiiiii-rtion  Ixitwiien  th<;  rato  of  iiit«!rcHt 
aiitl  the  fjiiantity  of  nionny  in  tlir>  coiintry. 

It  is  trill',  no  (loiiht,,  tliat  saving's  olffrin^'  for  loan  are 
always  in  tlie  ffiriii  fif  iiioni;y,  liiil,  it  is  not  true  that  all 
iiioiii'y  is  ill  thi!  foriii  of  saving's  ollfrin^'  for  loan.  Tlie 
money  in  j,'i'n<;ral  circiilatinn  (iocs  not,  Inlp  anybody  to 
Iiorrow,  for  the  holders  have  no  thoii;,'lit  of  lending  it. 
It.  is  only  the  money  actually  f)ircriiig  tor  loan  that  tells 
on  the  rate  of  interest. 

If  the  bankers  and  rither  lenders  should  spi.nd  their 
money,  instead  of  offering  it  for  lo.'in,  there  would  be  no 
less  money  in  the  country  than  thfsre  was  Ixtfore ;  but 
interest  would  ri.se  very  mii.'h  all  the  same.  In  fact  it 
•,vonld  1k!  an  advantage  if  we  could  droji  money  out  of 
view  ill  this  matter,  and  regard  the  oiler  fif  loans  simply 
a3  the  offer  of  .savings  in  tlM!  form  most  convenient  to 
borrow(!rs.  The  newspaper  phrase  "money  mark(!t,"  in 
the  .sen.se  of  loan  market,  is  a  standing  misuse  of  words. 
The  true  nioiKjy  market  is  where  money  is  actually  sold, 
that  is,  wluire  it  is  (jxchanged  for  goods,  —  not  where 
loaii.s  are  made  in  nionijy  to  be  repaid  in  the  .°ame  article. 
If  money  did  not  e.xist,  there  would  still  be  loaning  of 
savings,  and  the  rate  of  interest  would  deiiend  «»n  the 
same  princiides  as  at  present. 

The   rate   of    interest,  then,   is   no   indication  of   the 


♦'♦■ 


.V. 


•  i 


^ 


te. 


2H\ 


Ihtitlnil    Kriinoiiiif. 


iiniuilily  of  iiiuiH-y  in  llin  niiiutiy.  II.  tcily  imlinitt'H 
wliiliicr  u  liir;M>  i:t-  ii  niiiuII  |iiii|Mit'liiiii  of  lliti  I'xiHlin^' 
Htitik  in  iilVt'iiii^  fur  loan.  A«'<iinliii^ly  iiicrniNn  of  mr- 
ri'iicy  tliit'H  lint  litwcr  (lio  mW  nf  inlciTHt.  If  tlm  <'iiin'ii<y 
Wt'i'i'  iiiiTcnMi'il  II  liiiiiiti'cil-fiilil,  t.lii'i'it  wniild  III'  11  lininlri'il 
tiiiit'S  iiiiiii'  iliilliiiM  iitri'iiii;,'  fur  liian  im  ilmiliL,  liiiL  lln' 
iiunilii'r  iif  ilolliirs  iiiTilnl  liy  liurruvvt-rH  wntilil  In!  ii  liiiii- 
tln'tl  tiiin'H  j^it'iiU'r  iiIhu.  Ah  himiii  iih  prin  s  unil  iiioiioy- 
Wii^cH  Im'i'iiiiu!  luljiiHtiMl  III  till!  iii'w  vulimu!  nf  <:uir<!iiry, 
••lU'li  liurritwiM'  wiiulil  lu'cii  u  liumlrcit  ilulliirH  to  ilo  tint 
work  jiri'vioiisly  (loim  liy  oiin  ilojiur.  LnuiiaMi!  huvjii^jh, 
in  till!  Hi'iisi-  of  iiiciiiiH  to  nirry  on  luiHiin-Hs,  would  l»o  no 
^rniliT  lliiin  lirforc  tlin  iiHTiiiisi!  of  (uirmnny. 

Looking'  at  tlii!  <'iih()  in  iinotluM-  way,  liotli  loan  and 
ropaynii'iit  conHist  of  money.  If  dolIaiH  bo  c.licaiitiniid 
for  l»^•.rrowill^^  they  aru  also  chcinioiuiil  for  rctpiiying  loaim 
and  for  payinj^  interi'st.  A  man  can  as  (!anily  pay  live 
dollars  for  tlin  use  of  a  linndri'd  when  dollar.s  are  dollars, 
as  when  eaeh  dollar  is  only  worth  u  cent.  Hoth  terms 
of  the  ratio  are  all'eeted  aliko  whonovur  dollars  uro  choap- 
oned  by  inorease  of  curreiK^y. 

A  high  rate  of  intAirest  then  is  no  sign  of  a  Kcareity  of 
money,  nor  is  a  low  rate  n  sign  that  the  currency  is  hirge 
in  amount.  The  high  interest  that  i>rcvail.s  in  a  com- 
mercial crisis  is  duo  to  the  scarcity  of  loanable  savings, 
not  to  the  lack  of  money.  The  low  rate  that  prcivails 
during  a  depression  is  due  to  lack  of  demand  for  savings, 
not  to  any  excess  of  money.  In  fact  money  never  seems 
s<!arcer  to  the  mass  of  men  than  in  times  of  depression, 
when  interest  is  at  the  lowest  point 


.  iirily  iiiilJi'iiti'H 
iif  lli*i  i^xiMliii^' 
iiicn'iiMi!  ul'  itur- 

If  llm  riiin-rny 
III   lie  II  liilinlrnl 

lIlMlIll,    llllt    llii- 

iviiiilii  III!  a  liiiii- 
(■••H  (iiid  iiKiiitty' 
iii(>  iif  curri'iiry, 
iillaiH  Lo  (III  till! 
DuiiiiMi!  Haviii^jH, 
•HH,  woiilil  lie  no 
•<!ii(;y. 
Ixilh  loan  and 

H     Im!    <;ll(!a|i»!ll<!(l 

»r  rcipayitif^  loaiiH 
I  (!anily  |tay  live 
liars  art!  (lollars, 
tit.  Hdili  t<;riii.s 
ollar.s  uro  chcajj- 

;  of  a  scarcity  of 
currency  is  largo 
jvails  in  a  coni- 
oaiiablc  savings, 
ito  that  prevails 
laiid  for  savings, 
noy  never  seems 
es  of  depression, 


Intunnt  and  th«  tSuji/il//  of  Afunf;/. 


2Hr, 


All  in«r<'iiH<!  or  di'iri-aHe  of  ihn  »ijiriii<y  nmy  l<;iii|»o 
nudy  all'f  t  llii:  riil.<;  of  tuU'H-id,  if  il  li«!  )iii)-i|iiully  <Iik 
triliiitt'd    Im-Iwi'I'm    tli<'  oi'-rM-y  "H'riiit;    for  joiui  and  ih'; 
iii<)iii-y  in  ordinary  rircidul.i'-n.      lor  );xani|/|i',  lli'!  iinp'.r 
talioh  of  nioiiiy  frmn  aliroad  alMayi  |ow<;rK  l.lii:  inij:  of 
iiilin-'it  f'lr  till!  liniir,  Inil  thin  in  l<<;<;aiiM;  ih':  n>;w  nion<-y 
il  iiiiporti'd  liy  ilie  hankirrt  and  l>rok<-rv,  and  <:ohHc<|iii;nlly 
pn-m-ntM  it.i<df,  in  thi;  lir^t  inMtanci;,  an  an  addition  lo  iho 
loanalile  Having^.      Kv<ry  dollar  of  h\ni  ti:  inij/orlid  addi 
sivi-ral  dollars  to  tlif  l<  nding  j/ow<r  of  th'-  hankn      Sinii 
larly  a  diain  of   <;i»iii  for  i!XiM;rlali<»ii   raiwrn   lh<;  r.tl<;  of 
intvri'Ht,  hcianH*!  (■vi-ry  ilollar  <'X|»«»t':d    h-nMrnn  hy  wtv- 
«!ral  dollarH  tin;  ahilily  of  tin:  hankn  to  grant  loani.     liut 
the  eH'(!»;t  in  each  cane  !«  only  tifniporary,     A«  hMin  an 
the  increase  or  diniitnition  has  Lime  Ui  di>ttrihiiU:  iLH';lf 
<'|iially  over  the  whole  volume  of  the  curren'y,  inu.'reht 
ntiirnH  to  its  old  rati;. 

If  money  he  brought  into  a  country  in  the  pxketH  of 
travellers  and  emigrants,  it  has  ;iO  t«;ndency  Ut  lower  the 
rat<!  of  intiirest  even  Uimjc/rarily.  It  adds  nothing  to 
the  loanable  savings  of  the  country.  In  fact,  it  would 
lend  to  raise  the  rate  of  inUrrest  until  su'h  time  at>  a 
due  projiortion  of  the  increase  of  currency  should  n.-ach 
the  reservfjs  of  the  banks ;  for,  by  niising  price«,  it  would 
Htimulate  borrowiiig  without  adding  Vj  the  volume  of 
loanablo  savings. 


8* 


ii 


CHAl'TKU    XXIII. 

PI10DU0TIVENE88  OF   NATURAL   AOENT8.  -ECONOMIC 

BSNT. 

1.  Natural  Advantage!  for  Production.  -  W<!  Imvr  iil- 
rtfiiily  liuil  titriisioii  In  noil!  tlm  fart  lliut  llu!  iiatiiiiil 
advmitiinfs  fnr  ilu!  lotuluctii'ii  of  any  «ivun  coninio.lity 
urt5  not  <'Vfiywli('ri'  (M|iially  Kood  In  thu  jiroduotion  of 
coal,  for  uxampli',  oni'  niiiio  may  liavo  its  (U)|M)HitH  nearnr 
to  till)  surfac'i',  or  in  tliicktfi  Hoains,  or  of  better  (jiiality 
than  anotlu  r.  In  tlii-  inodiution  of  wlumt.  one  jiioi.'u  of 
grouiid  may  liavo  halUw  (lualitics  of  .soil,  a  licltcr  sitna- 
tion,  or  tniHitsr  aocoHH  tti  fiatili/crs  tlian  another;  one 
re"'ion  may  have;  a  more  favoraole  climate  than  another. 
In  the  manufacture  of  iiaper,  one  mill-situ  may  have  a 
more  convenient  water  supidy,  or  easier  access  to  fu(d 
and  other  materials,  than  another.  In  all  kinds  of  pro- 
duction, nearness  to  the  market  is  an  advantage.     And 

so  on. 

Now  those  diHerences  in  natural  agents  hava  an  import- 
ant ell'ect  on  the  productiveness  of  the  labor  applied  to 
each.  Those  wIkj  have  possession  of  the  bettor  natural 
facilities  in  each  industry,  are  obviously  in  a  position  to 
obtain  greater  results  fur  a  given  outlay  of  labor  and  wait- 
ing than  those  who  carry  on  the  industry  under  less  fa- 
vorable conditions.    If  those  who  work  under  the  relative 

280 


NTS.  -EOONOMIO 

n.  —  \V<!  \m\'*'  nl- 

Ihiit  tlu'    iiiitiiral 

^ivL'ii  (■(iiiinmility 

tlu!  jirotliiction  (»f 

In  (lt'i»().sit«  nt'iucr 

of  iHiltor  (luiility 

(■luiiit,  oik;  iiitic(!  of 

loil,  a  licltcr  .sitim- 

liaii   aiioUiur;    oiio 

lattt  than  aiioUuir. 

l-siti)  may  havi;  a 

iiur  ftcciiss  t(j  fuel 

II  all  kinds  of  pro- 

advantnj^u.     And 

its  liava  an  inii)ort- 
c  labor  appliod  to 
till)  butter  natural 
ly  in  a  position  to 
y  of  labor  and  wait- 
istry  under  less  fa- 
;  under  the  relative 


Ntiltirti  itf  Economic  a    U. 


287 


disadvantaK*'  '"■«'  'ddt!  to  eiirn  onlinary  wa^fH  and  |in»fitH, 
lh(t  others  iniiMt  be  K"'ttiii^'  Honieihiiij,'  more  than  (his. 

2.  Economic  Rent.  —  Wit  have  Inn*  a  rase  of  what  in 
called  I'll oiioiiiii'  Kent.  The  term  is  a|i|ilied  to  evtjry 
exeosH  of  product  or  <if  return  that  is  due  to  the  po.sses- 
sion  of  superior  natural  agents,  or  of  facilities  that  nro 
not  o|M'n  to  (iverybody. 

In  study inj^  this  subjort  tho  Rtudont  must  dismiss  tin- 
idea  that  th«'  word  rent,  iis  used  in  political  economy, 
iic<'cssarily  means  a  sum  paid  for  the  use  of  aiiythiiii,'. 
The  rent  of  which  we  speak  here  has  no  necessary  refcr- 
tMice  to  payments  between  men.  It  means  simply  an 
e.xcess  ot  product  or  of  return  tin  .,  is  due  lo  tlic  use  of 
a  natural  advantn;,'!!  not  ojkjiu  to  all  pntdiicers. 

It  mak(!H  no  diflerenee  whetlivr  the  person  usiiif,'  the 
superior  aj,'ent  hires  it  of  another  or  owns  it  himself.  If 
he  hires  it  of  another,  the  rent  may  be  claimed  by  that 
other.  If  ho  owns  it  himself,  the  rent  is  his  own.  In 
either  case,  the  term  denotes  simply  the  extra  product 
or  income  that  is  due  to  the  natural  advanta^'e. 

Again  we  use  the  word  rent,  in  eommon  speech,  to 
denote  i>ayments  for  the  use  of  property  of  any  kind. 
We  speak  of  the  rent  of  a  house,  or  of  an  olliee,  or  of 
a  piano.  But  payments  of  this  kind  are  never  wludly 
economic  rent.  They  are  largely,  and  in  cases  like  the 
rent  of  a  piano,  wholly  compensation  for  outlay  expended 
ill  getting  the  hired  article  jtroduced.  Heal  rent,  when 
it  takes  the  form  of  a  payment,  must  be  for  the  use  of  a 
natural  agetit  such  as  land,  mines,  water-power,  etc.    And 


1 


•  > 


28tt 


J'bliticnl  £conomy. 


ovon  ill  Iho  cnmi  of  natural  n^  .it«,  tho  i>«yim'iitH  rnlU'<l 
rout  aru  m^Mom  wlioUy  rout  in  tlitt  tMiinomic,  huiino.  If, 
for  cxfimpl"'.  a  until  liiri's  liiml  timt  liiw  been  iiii|irii\i'(l.  or 
n  iiiiiin  tImt  is  alrt'ii<ly  in  o|iiTiitioii,  u  part  <»f  tlm  pay- 
iiiriit,  pt'iliiips  the  grtMilt-r  part  of  it,  in  iimn-ly  a  rt'liirii 
for  tli«  outlay  iiiatlu  in  j  rfpariii^  tint  lainl  or  tlio  iiiiiu)  for 
UHO.  K<'«»iioinic  nuit  is  not  u  cotnpt'iiNation  for  lalmr  ami 
waiting.  It  liai'  ruforuiicu  t<»  tlm  iiilmri'iit  (nialititm  of 
tliu  natural  iij^tiit  that  yifliU  it,  rt'ganlutl  in  it«  orij{inal 
or  uniiiiprovcti  cundilioii 

At  tliti  HaiiK!  tiiiit!  it  is  evident  that  tliti  ndvaiitaneH  of 
a  particular  Hpot  of  j^rouml  iiuiy  <l»'|M)i!(i  greatly  on  tlu! 
staU?  of  its  Hurroiindiiiys;  and  thoHe  may  he  indelinitt  ly 
inipnived  by  huinan  exertions.  Wheni  tho  owner  (»f  land 
or  nny  other  noturnl  at,'ent  getH  the  heiielit  of  other 
nion's  outlay  in  this  way,  the  f,'ain  to  him  is  as  if  the, 
whole  ndvaiitan(!  had  heeii  eonferred  by  nature.  To  him, 
therefore,  though  not  to  tho  comniunity  m  a  whole,  tho 
results  of  the  improveniont  aro  in  tho  iiaturo  of  rent. 
When,  for  example,  a  new  railway  is  built,  briiiK'iiiK 
cheap  transportation  to  a  rej^jion  hitherto  <ut  olV  from 
thu  great  markets,  tho  increased  letting  value  of  the 
lands  may  be  regarded  as  rent  'or  tho  land-ownorH, — 
provided,  of  course,  that  the  road  has  been  built  without 
corrosjMinding  exjienso  to  them. 

3.  No-Rent  Stage  of  Population.  —  More  difforencos  in 
tho  quality  of  natural  agents  of  any  kind  wouhi  iu)t 
of  thoiaselves  give  ri.so  to  rent.  In  fact,  wo  shall  pres- 
ently 800  that  any  class  of   natural  agents  might  yield 


aVvA'i'mI    fili^ifr    ttf    JUjltMlntioH, 


2H0 


0  iMtyiiu'iitH  cnlli'il 
iiiioiiii(!  miiiiio.     If, 

but'ii  iiii|irii\«>(|,  or 
a  jmrt  of  tlio  pny- 

iM  iii(<rrly  II  return 
itiil  or  lliu  iiiiiH)  fttr 
itioii  for  liibor  ami 
liiTi'iil  (luiilitiuii  of 
rdcd  ill  itH  ori^iiiul 

:  thti  ndvmitiimtM  of 
iimI  ^rnilly  on  the 
iiiiiy  Ih-  indi'linitcly 

tliu  owner  of  land 
Li  Itunetit  of  other 
()  hini  is  IIS  if  tlie 
ly  niitiire.  To  him, 
lity  nH  a  whole,  tho 
ho  imturu  of  runt. 

is  built,  hriii^'in^ 
herto  eut  olV  from 
ttinj;  value  of  tlie 
the   liind-owiiers, - 

boon  built  without 

More  (lifferoncos  in 
ly  kind  wouhi  not 
fact,  we  shall  pres- 
agents  might  yiold 


lent  uvon  if  they  wt^ro  ull  ei|ual  hi  pohit  of  itdviintii;(eN. 
The  tnio  eiiuNe  of  rent,  in  any  ehHH  of  themi  a){entH,  in 
Hcareity  of  them  in  eoni|iarisoii  with  th>*  demand  for 
the  produi't  oiitaiiied  by  means  of  them.  Thin  demand 
de|iendN  printarily  on  |io|iululion. 

I'urlmim  tin*  eaaioNt  way  of  ^ettiiiif  dear  idenn  rei^uid- 
u\\i  rent  into  eoiiMidor  what  hnp|H.>nN  everywhere  as  popu- 
latioii  iiiereases.  liitt  uh  take  the  produetion  of  fooil  as 
an  example.  We  may  assuiiii>  that  the  people  of  a  coiiii- 
try  are  interested  in  ohtuiiiiiii;  their  needful  supply  of 
food  in  the  easiest  way  While  population  is  still  small 
in  proportion  to  the  area  of  land,  there  in  a  widu  o[ition 
as  to  the  portionn  to  be  tilled.  We  may  assume  that  the 
fanners  of  the  community  can  tli.sci>rn  the  landn  th:it  an; 
most  favorable  for  their  purpose,  and  that  thuAu  will  Imj 
cultivated  in  preference  to  pfiorer  lands. 

Whili!  there  are  still  lands  enough  and  to  spare  of  the 
best  grade,  the  value  of  food  of  any  kind  will  coriespoiid 
U)  tho  cost  of  producing  it  on  these  lands.  That  is  to 
say,  Its  viiluo  will  Imj  hucIi  ns  to  nll'onl  ordinary  wagen 
and  profits  for  those  who  raise  it,  but  nothing  over  us 
rent  for  the  land.  Kor  if  the  value!  were  high  enough 
to  yield  a  rent  for  the  cultivate*!  area,  those  who  own 
other  lands  just  an  good  wcjuld  iiuickly  bring  theirs  into 
use,  and  too  much  food  would  bo  raised.  We  have  tlie.su 
two  points  to  start  with :  first,  that  while  population  i.s 
small,  the  valuo  of  foo<l  i.s  governed  by  thu  cost  of  raising 
it  on  tho  nio.st  advantageous  lands,  and,  sucoudly,  «o 
agricultural  laud  all'ords  a  runt. 


i!t 


1^ 


t'Dtt 


4 


aoo 


lUUUal 


4  iHinnlngi    of    K«i  ™  Al  ft  ruiiiiHimllv.-ly   »'»rly 
*U\nv  in  Ui«  «ruwth  «>f  ft  .  ..iniiiimlly.  llu-ru  n.iiu-H  «  liii»' 
whon  till'  Mml  mlvuiilu«.'..UH  |M.rli..i  -  "(  Mm-  h,.11  ur.<  no 
|„„K..r  Milll.i..i.t  to  Huitly  111.'  wai.tK  Ml  th..  «l>ol.-  iMt«>- 
luliuii.     Wlioii  lliul  iMiiiit  in  ri'M.  Ii.a  UI..I  l«iHmtl.  two  ii.'W 
f.i.u  u|'l-!'»r.    Tim  llrnt  Ih  llmt  thu  vuhui  of  fuotl  Ih-kIiih 
to  Htuii.1  at  II  lilylMT  l«v».I  than  U'U'Txv.  tho  »M  |.rl.i*  .Imm 
not  ln.lu.n  fiirnuTH  to  r«U«  .'IiouhIi  fnr  all.    Tlio  vul.i.i 
rimm  until  runi..TM  tlml  it  prutllul.!.-  to  till  I-sh  mlvaii- 
taK.MmH  laii.lH  than   form.rly.  a.i.l  it  HU^yn  |M.rii.amM.tly 
l.ij^her  that.  iH.for...     U  it  du\  not.  tli-  1.'«h  n.lvaut««.-ouH 
luu.is  woul.I  not  Im.  rullivat.Ml.  an.l  tln^  n.-.lfnl  aa.lilion 
to  il...  Hupi-ly  of  foo.l  wonl.l  not  l..'  rniMo.!.     Ilinlior  than 
IH  nuin.iont  t<.  alVonl  onlinary  wnKcH  nn.l  profltH  for  rai.- 
In«  th«  n.'o.lful  a.hliti.m  tho  valno  will  not  ^o.    -at  h-ast 
M>  an  to  ».tny.      If  it  «li.l,  u\nn   than  n.ont-h  of    th.-sn 
landH  wouhl  bo  .•uUiv...t.'.l  aixl  too  niu.h  fo.«l  wouhl  ho 
raiMo.l.     Wo  oan  thon-foro  miy  that  tho  natt.ral  valuo  of 
f.MHl  will  now  hi:  that  which  alVor.lH  onlinary  wa^on  an.l 
l.rolitH   for   raiHiny   it  on    tho   1o«h   a.lvantago.MiH   lan.lM. 
with  n..thin«  over  an  rent  f.»r  thoso  lan.lH.    Thin  is  tho 

tirst  fact. 

Th.!  m-oond  is.  that  th.m..  who  till  th.'  host  lan.ls  nr.t 
now  al.l.i  to  w'll  thoir  orops  for  nioro  than  onou«h  to 
nllor.l  th.-ni  onlinary  wnK.ss  and  i.n»fitH.  It  is  no  hanh-r 
thiin  lM>fon«  to  rniHo  food  fn»m  thoso  laiwls;  yot  ciwh 
hushol  of  tho  <Top  »o11h  for  ni..ro  than  lu^foro.  Tho  extra 
gain  thus  accruing  fr.m.  tho  hi^hor  natural  valuo  ..f  tho 
crop  i»  lont.     If  tho  nwnors  of  thoso  lands  do  not  them- 


Ot^tU'lfl    ,1/   ffin{. 


m 


iiiii|Hirullvi'ly  i'urljr 
tliiTtt  t'Miiit'N  II  tilth' 
<  lit   till'  Hiiil  urtt  tin 

III     llll-    Wliull'    lMI|tU. 

ml  |iiiHHiil,  two  tii'w 
iiliif  <i(  fiHiit  U'n'im 
;  tho  oM  |>rin'  <l"Htn 
fnr  nil.  Tli«»  viiltm 
tn  till  1<"«H  lulvftti- 
,  MtiiyM  ju-riiiaiiriilly 
i>  |t!MN  nilviuit(i><i'<)ttM 
hi)  tii't'itfill  lulililinii 
nimiul.  Ili«lior  llmii 
ami  protUH  fur  riUH- 

ill    not  J{<l,    --lit  ll'llMt 

111  i'm»ii;{li  «»f   tlii'Mt! 

iiuih  fiMid  woiilil  Im 

;ho  iiiituriil  viiluf  of 

onlltmry  wiikuh  iiihI 

lulviUltllgt'OIIH     lllllls, 

liimlM.    TliiH  is  till* 

I  the  lii'st  lamlH  nni 
iirt)  tluui  I'tioiinh  to 
fitH.  It  w  no  hiinli'i' 
i>Hi!  liuiils;   yvX  ciu'li 

II  bi^foiv.     Tlio  «'xtiii 
imtural  viiliic  of  thu 

J  liiiulH  do  not  tluMii- 


xlviM  till  il (,  lUvy  hiiiy  •tkiiit  friiiii  tlin  1  tiltivutorii  au 

•iiiiiml  |Hiyni..ui  Miiyhjy  injiial  t«»  lliU  I'Xlri*  |.ri.lll. 

5.  Kxtenilon  of  th«  Rent  Artt.  —  Ht,  l,un  nn  lUvtv  In 
.  moiikIi  liiinl  .,r  iliii  m'i'iiiMl  yriiiln  ill  |i«iiiit  of  iiilvaiittiyim 
I',  -iipiily  (Im>  wIioIi-  iloiiiami  fm  fninl,  ||in  iicivNmiry  mlill- 

' "^  '"  ll"'  '  lo|i  i.lll  Ih.  nlil'  iiti'il   NUllliiIlt  IllyhiT  nixt,  tllt> 

iiiitiiriil  valiii'  of  fuiiil  will  nniaiii  Ht.iiily.  iiml  n.i  Imi.U  nf 
III.'  wToiiil  Krn.l.'  will  iill'iinl  ri'itt.     lint  wIm-m  |iii|iiilutiiiti 
j^ioWN  to  j*iti  II  a  iMiiiit  that  thi'm-  lamU  nn  |,,iiyi.r  Miiihcc, 
I  lie  Hlt|i|i|y  of   fii.iil  uKaiti  liiyiiiM  to  I'o  ili'llrii'tit,  till)  Vallin 
li^rs,  ami  .iiltivati.iii  in  cxt.Mi.l.-il  to  lamU  of   tint  m-xt 
iiilViiur  «iaili'  ill  |iniiit  of  a.lvanta«i's.     In  thin  m-w  situ- 
iitioii,  tint  natural  valu.-  will  lii>  that  wlii.  Ii  all.niN  (,|,|;. 
nary  wiik"m  ami  jirolits  fur  (•iillivatiiiK  thf  third  j^iad..  of 
l;ind,  with    iiothin«  nvi-r    for   ivnt.     Tins    hij,'hi'r  valiin 
;;ivi'H   risi'   to  a  fnrthiT  ttxtra   |»ro(it.  or  rent,  from   tliu 
•  iikivation  of  till'  hcMt  land**.     It  also  makt-H  tliu  culti- 
vatiiin  of  the  land  of  tin-  Mcciiml  ^Tadf  yiidil  inoin  than 
"idiiiiiy  wagfH  and  inoliis :  thesu  lund.s  also  now  alluid 
1  rem. 

Till-  rent  of  tlm  huttur  laiidM  may  hii  looked  at  in  twn 
diir.;rt'nt  ways.  Coniparinj,'  tlic  cultivation  of  runt-yitdd- 
iri;,'  land  with  all  other  wnvH  of  invostinj,'  miviiiKH,  wo 
may  re;,'ard  rent  .simply  as  <'\tra  pro(it,  <lue  to  the  fact 
lli.'it  tho  value  of  the  product  is  hij,'hi'r  than  it  nei-ds 
I"  ho  in  order  to  all'ord  ordinary  \vaj,'efi  and  prolits  to 
I  lie  prodiuit'rs  Ufdiig  the  hi-tter  natural  agents.  This  is 
'lie  Mimphir  vi«w.  H<!coiidIy,  we  may  regard  it  as  extra 
product  over  and  above  the  amount  ohtainublo  from  tho 


'i! 


^1 


292 


Jhlitiail  Ecoiutmtj, 


Ica.sl  iulvantii^'oouH  IiuuIh,  by  an  cciunl  outlay  of  labor. 
The  two  vietVH  ooim;  to  the  same  ivsuU,  .since  the  culti- 
vation of  the  jioorost  hmils  niu.st  yii'ld  ordinary  [irolits, 
If  the  labor  thiit  ])rotluees  one  hundred  bushels  from  the 
best  lands  i/roduces  only  eighty  bushels  from  the  least 
advantajfcous  lands  in  use,  then  twenty  bushels  in  every 
o!Ui  hundred  ^adduced  from  the  best  lands  arc  eeonondc 
rent.  The  extra  profit  coincides  with  the  value  cf  tliis 
extra  product,  or  twenty  busliels. 

Every  time  that  cultivation  has  to  bo  extended  to  less 
productive  lands  than  those  already  in  use,  the  extra 
profit  from  cultivating  the  better  lands  rises  in  two 
ways.  The  excess  of  product  over  the  least  productive 
land  becomes  greater  than  before ;  and,  secondly,  the 
value  of  each  bushel  must  have  become  higher,  or  cul- 
tivation would  not  hav'j  been  extended.  Money  rents, 
therefore,  rise  more  raj)idly  than  rent  in  kind. 

6.  General  Principles  of  Rent.  —  Such  is  the  nature 
and  origin  of  economi'  rent.  i"'rom  a  consideration  of 
the  facts  in  the  ca.se,  we  are  enabled  to  lay  down  the 
following  general  princiid'is  ■ 

(rt)  The  poorest  lands  in  cultivation  at  any  time  yield 
no  rent,  so  long  as  there  are  other  lands  of  the  .same 
quality  lying  unu.sed.  The  latent  competition  of  the 
unused  portion  keeps  rent  down  to  zero  on  the  portions 
that  happen  to  be  in  use. 

(i)  Th?.  natural  value  of  food  corresponds  to  the  cost 
of  procuring  the  most  costly  part  of  the  whole  needful 
supply,  —  that  is  to  say,  the  portion  raided  o'l  the  poorest 
lands  in  cultivation. 


il  outlay  of  labor, 
lit,  siuco  the  culti- 
1(1  1)1(1  i nary  pioliLs, 
[  l)U8hols  fi'oin  thu 
uls  from  the  luiist 
,y  Lushuls  in  overy 
iiiids  arc  ceoiioinic 
the  value  of  tins 

JO  extended  to  less 
iu  use,  the  extra 
iiuls  rises  in  two 
le  least  iiroductive 
and,  secondly,  the 
me  higlier,  or  cul- 
ed.  Money  rents, 
,  in  kind, 
ich  is  the  nature 
a  consideration  of 
I  to  lay  down  the 

I  at  any  time  yield 
lands  of  the  .same 
ompetition  of  the 
ro  on  the  portions 

sponds  to  the  cost 
the  whole  needful 
icfcd  0!i  the  poorest 


Differeiiica  in  Lund. 


293 


(c)  All  lands  superior  to  the  poorest  yiidd  a  rent 
proporlitmed  to  their  .superiority.  This  superiority  is 
nitasurcd,  in  tlu!  ease  of  any  <,'iv(!u  laiul,  hy  the  (litlcrcnce 
lii'tween  tiit*  cost  of  its  croji  and  the  cost  of  prothu.inj,'  an 
(•(pial  ipiantity  from  tlu!  poorest  land  in  cultivation. 

7.  Meaning  of  "best,"  "poorest,"  etc,  as  applied  to 
Lands.  —  It  is  necessary  to  bear  iu  mintl  that  the  superi- 
ority of  one  tract  of  land  over  aiujther,  as  a  source  of 
supply  for  a  j;ivcii  market,  has  reference  to  all  the  points 
of  dillerence  iu  tiie  case.  It  would  he  a  j,'r('at  mistake  to 
think  only  of  dill'erences  in  fertility  of  .soil,  or  to  suppose 
that  rent  i,9  ever  a  nu!re  question  cf  bushels  to  the  acre. 
Tiie  superiority  of  the  better  land  over  the  poorest  may 
consist  in  easier  access  to  fertilizers,  greater  nearness  to 
the  market,  cheaper  means  of  transportation,  or  iu  any 
otlicr  circumstance  that  afl'ects  the  comparative  cost  of 
the  product  ol)tained  from  eacli,  when  brought  to  the 
place  of  consumption.  .The  inferior  laud  may  be  in  itself 
UKfTc;  fertile  than  the  other,  hut  so  much  farther  from 
the  place  wiiere  thcs  food  i.s  needed  that  its  superior  fer- 
tility is  more  than  counterbalanced  l»y  its  disadvantage- 
ous position.  Rent  has  reference  to  the  whole  advantage, 
!ind  this  is  nearly  always  a  compound  result,  or  balance 
of  many  points  of  difference.  Tlie  words  "best,"  "poor- 
est," etc.,  applied  to  lauds  in  the  discu,ssion  of  rent,  mean 
best  or  poorest  taking  all  the  circumstances  into  account. 

Again  the  relative  advantages  of  ditl'erent  lands  change 
with  changes  in  agricultural  knowledge,  improved  imple- 
ments, better  facilities  for  transport.,  .ion,  etc.     The  lands 


294 


J'olil  ic«  I  Ki'o  no  III !/. 


tliiit  an!  licst  ill  .111.^  slii^^.!  ill  u  imuphs's  hi.stoiy  may  lio 
far  IVom  Ix-iiij;  thoii^,'lit  l»'st  at  anotlicr  staH*!.  I-ui'Ih 
ari!  t^!»ii(l  or  ituur,  in  rclatidii  to  iviit,  iicconliiiK  as  tlmy  art; 
•food  or  |Mior  for  tln^  iicojilc  who  arc  to  use  tlitnu. 

8.  The  Law  of  Diminishing  Reti'-rns.  Our  view  of 
t'coiioinic  rent  wftiild  !•(■  very  iii<'oiiipl(!t(i  if  wt;  left  out 
of  si^'lit  an  iiiij)ortaiit  i»rim'ipl<',  not  yet  totulicd  on, 
rtilativii  to  till!  us(!  of  natural  njicnts.  Tim  amount  of 
l)roduit  that  may  Iks  ohtaincd  from  any  «;ivf!i  sillily 
or  lixU.'iit  of  those!  a^cMits  is  not  suhjrct  to  any  lixcd  or 
doliniU!  limit.  Tlu!  modes  of  usin^'  them  an^  such  that 
a  j^roatcr  or  u  less  (luantity  of  lalior  can  he  ajiplicd  to 
thorn  at  will.  The  product  may  he  increased  hy  addi- 
tional lahor  at  any  tinu;.  I5ut  here  wc;  coiik-  on  tin; 
so-called  law  of  diminishing  returns.  The  increase  of 
product  is  usually  found  not  to  he  in  i.roportion  to  the 
i!u;rease  of  lahor. 

The  i)rinciple  may  he  conveniently  illustrated  in  the 
case  of  farmini,'.  In  any  given  condition  of  the  agricult- 
ural arts,  the  amount  of  food  that  may  Ik;  raist.'d  from 
a  "iveii  niece  of  land,  has  no  fi.xed  or  inlh^xihlc!  limit,  hut 
deiKuids  on  the  amount  of  care  and  skill  hestowed  on 
the  cultivation  of  it.  It  has  heon  well  said  that  no  man 
has  ever  yet  .leveloped  the  full  productive  capacity  of 
a  single  acre  of  ground.  Whatever  the  cro])  alreiidy 
ohtaincd,  a  larger  crop  may  be  ohtauied  another  year  liy 
more  assiduous  cultivation.  The  soil  niay'always  he  more 
completely  pulverized  or  further  enriched;  s  eds  may  bo 
more  carefully  selected  or  more  favorably  planted ;  more 


Mm 


TIh-  hnr  iif  DiiiiiniiihiiKj  Returns. 


295 


lo's  history  may  lio 
>tli(!r  stago.  LiuiilH 
ccordiiiy  as  limy  arc! 

\    to    list!    tluilll. 

•ns.  —  Our  vi(^\v  of 
,)lt!t(i  if  \v(!  loft  imt 
[)t  y(^t  toiiclit'tl  on, 
,s.      Till!  amount  of 

I  any  K'vt'H  sujiply 
jrct  to  any  lixcd  or 
tla-m  arc  siicli  tliat 

can   lit'  ajii'lit'd  to 
inrrcasL'd  liy  aildi- 

ro  \vt!  conic!  on   tlu! 

>..      Tli<!   incrcasii  of 

II  ]iidiiortion  to  tlio. 

iy  illustratt!«l  in  tlui 
tion  of  tlu!  af^ricult- 
inay  Ik;  raised  from 

inllnxildc  limit,  Imt 
1  skill  biistowed  on 
oil  said  that  no  man 
jductivo  caiiaoity  of 
i(r  the;  cro])  alriMidy 
iiL'd  anoLlicr  yoar  by 

may'always  be  more 
•ichcd;  s  eds  may  be 
)rably  planted ;  more 


care  may  be  ^'veii  to  wcciliii},',  wateriii},',  and  otherwise 
nursing  the  growing'  i>liints,  etc  Kvi-ry  surh  addilionnl 
exertion  caiistis  the  yield  to  be  more  eoiiioiis  in  (juantity 
or  lietter  ill  <niaMty  than  before. 

All  this  is  (jiiite  true,  and  is  most  fortunatt!  for  tiie 
human  family.  Uut  the  fact  remains  that  high  iiiltiva- 
lioii  is  a  costly  method  (tf  adding  to  tln!  food  sujijily. 
Th(!  same  labor  (ixpeiided  in  loo.ser  <ullivatioii  of  a  larger 
area  would  ]>rocure  a  minh  larger  (^llantity  of  food. 

In  the  aii|>lieiition  of  lab(»r  to  any  given  pieci!  of  liiml, 
there  IS  a  jioint  of  maximum  return  in  proportion  to 
labor  exiMUidi'd.  This  [loint  is  found  in  a  eoiiiparatividy 
rough  and  hasty  cultivation  of  it.  Once  the  point  of 
greatest  i>roportional  yield  is  reaehud,  any  additional 
rxpenditur.i  of  labor  is  met  l»y  the  law  of  diminishing 
ivturns.  Kurther,  the  higher  the  pressure  already  put 
upon  the  soil,  the  smalhsr  the  addition  to  the  crop  by 
any  new  application  of  labor. 

"'  se  are  principles  applicable  to  all  the  extractive 
industries.  The  point  of  maximum  return  is,  (»f  cour.se, 
a  matt(!r  to  be  .settled  by  practical  experience  in  each 
case.  It  cannot  be  known  by  any  general  or  abstract 
rule.  Further,  it  is  likely  to  vary  with  every  new  dis- 
covery or  imiH'ovement  in  the  mode  of  using  natural 
agents  of  any  kind.  lUit  for  every  natural  agent,  and 
for  every  state  of  the  productive  arts,  there  is  such  a 
point;  and  it  is  nearly  always  found  to  lie  on  the  side 
of  working  it  at  a  comparatively  low  pressure,  rather 
than  a  high  one 


It:; 


F  «»«?',■• 


■  'X 


296 


Ihlitical  Economy. 


Up  to  till  i»tint  (»f  (liiuiiiishini,'  nstiiriia  it  is  obviously 
n  saving  of  lab  )r  to  draw  ncotlful  food  and  nrntorials  from 
tlu!  agontH  already  in  use  at  any  tiint;,  boforc  extending 
tli(!  area  ttf  o|K!rations.  We  may  therefore  assume  that, 
wlien  new  lands  or  new  mines  are  brought  ir.to  use, 
being  naturally  no  better  than  the  old  ones,  the  point 
of  diminishing  returns  has  been  reached  upon  those 
already  in  use. 

Conversely,  while  there  arc  still  new  lands  open  to 
cultivation,  as  good  in  all  respects  as  the  old,  we  may 
assume  that  additional  sui)plies  of  food  will  ordinarily  be 
obtained  by  extending  the  area  of  cultivation  rather  than 
by  applying  additional  labor,  with  diminishing  returns, 
to  the  area  already  in  use. 

When  this  is  no  longer  possible,  when  all  the  most 
advantageous  lands  are  already  in  use,  there  are  obviously 
two  ways  of  o))taining  needful  additions  to  the  food  sup- 
ply^ —  the  one  by  bringing  less  advantageous  lands  into 
use,  the  other  by  higher  cultivation  of  the  old  lands. 
In  practice,  both  methods  are  applied  simultaneously. 
But  in  order  that  men  shall  raise  additional  supplies  in 
either  way,  the  value  of  food  must  rise  sutticiently  to 
make  the  raising  of  the  increase  a  source  of  ordinary 
profit. 

But,  if  the  raising  of  the  addition  yields  ordinary 
profits,  it  is  clear  that,  taken  as  a  whole,  the  crop  raised 
on  the  old  lands  must  yield  more  than  the  ordinary  rate 
of  profit.     This  extra  profit  is  economic  rent. 

9.  Rent  not  Due  Solely  to  Differences  in  Lands.  -    V\  j 


rns  it  is  ohviouHly 
ikI  luatoriiils  fn»m 
,  bofore  extending 
iforo  assmno  tliixt, 
brought  ir.to  uhh, 
d  onus,  the  point 
chcd    upon   those 

3w  lands  open  to 

the  ohl,  we  nmy 

will  ordinarily  bo 

vation  rather  than 

ninishing  returns, 

hen  all  the  most 
here  are  obviously 
IS  to  the  food  sup- 
:ageou3  lands  into 
of  the  old  lands, 
d  simultaneously, 
itional  supplies  in 
"ise  sutticiently  to 
ource  of  ordinary 

a   yields   ordinary 
ie,  the  crop  raised 
I  the  ordinary  rate 
lie  rent, 
is  in  Lands.  —  V\  j 


Rent  due  to  Scarcity  of  Mntural  Agftita.        297 

MOW  SCO  that  the  existonco  of  economic  runt  dotts  not 
di'pond  on  the  dilTcnmces  between  lands  in  point  of 
lulvantage.  These  dillorencca  simply  give  rise  to  ono 
fiirni  or  phase  of  rent;  it  may  bo  that,  in  the  long  run, 
lliey  will  only  cau.se  dill'erences  in  runt.  Kvtin  if  all 
lands  were  equal  in  point  of  advantage,  runt  would  ari.so 
as  soon  as  needful  additions  to  the  sui)ply  of  food  could 
1)0  obtained  only  by  cultivating  some  portions  of  the 
whole  beyond  the  point  of  maximum  return.  The  value 
of  food  would  then  have  to  ]»e  perman(!ntly  higher  than 
it  was  while  increase  could  still  bo  obtained  by  extend- 
ing the  area  of  cultivation,  —  enough  higher  to  make  the 
raising  of  the  addition  profitable  in  spite  of  its  greater 
cost.  The  value  of  the  whole  crop  would  now  follow 
the  cost  of  the  addition. 

We  must  suppose  that,  at  the  old  value,  farming 
yielded  ordinary  profits.  At  the  new  value  it  does  more 
than  this,  and  the  excess  is  economic  rent.  This  point 
may  be  made  more  clear  if  we  keep  the  increase  distinct 
in  our  minds  from  the  old  amount  of  crop,  '^•f  course  it 
is  optional  with  individual  farmers  whether  to  raise  the 
increase  or  not.  If  for  any  reason  some  of  them  should 
simply  go  on  in  the  old  way,  raising  only  the  old  (juan- 
tity  from  their  land.s,  they  would  have  the  benefit  of 
Ihe  higher  value  just  the  same.  The  addition  to  their 
returns  would  be  economic  rent.  We  may  assume,  how- 
ever, that  the  opportunity  to  employ  additional  labor, 
with  the  prosixjct  of  ordinary  profits  on  the  additional 
outlay,  would  be  generally  taken  advantage  of  by  farmers. 


•i^i 


:i^ 


.^■^-^.ii%^-iv-'«w*t  .3^'iri^*Bitsyii^^-AT^. . 


-  i-.i%^'i',^i^^2ti'^-ii^^i^^jr' 


298 


J'ulUical  Economy. 


TliiH  npiHirliinity  WduM  Ik;  uh  gdud  ns  i\wm  olTcrod  liy 
till!  cuiaiiiou  run  <tf  iiidiistrios  in  thu  country.  It  would 
simidy  yitdd  iiu  excess  of  |(rolit. 

10.  Rent  and  the  Price  of  Food  —If  all  tho  faruiiuK 
liinds  in  tlu!  United  Stutos  were  cultivated  l>y  t-mant- 
farnujrs,  each  imying  ii  full  rent  for  his  Itind,  would  the 
idiits  thuH  paid  cause  tho  price  of  food  to  be  liiglujr  than 
it  now  is?  In  countries  where  the  farms  are  held  at  a 
rent,  would  tho  jtriee  of  food  he  lowered  if  the  landlords 
HJiould  make  a  prtiHent  of  tho  farms  to  the  tenants? 

These  are  (luestiom*  which  may  seem,  at  first  sight,  to 
require  an  allirmative  answer.  Hut  anybody  who  con- 
siders eanjfully  the  nature  of  economic  rent  ought  to 
have  no  ditlicuUy  in  seeing  that  both  questions  must 
bo  answered  in  the  negative. 

Where  the  food  supply  is  drawn  from  lands  differing 
in  point  of  advantages,  wo  have  seen  that  the  cost  of 
procuring  it  from  the  least  advantageous  lands  fi.\ea  the 
natural  value  of  the  whole  supply.  We  have  also  seen 
that  the  least  advantageous  land  yields  no  rent.  Tt 
follows  that  rents  liavo  nothing  to  do  with  settling  the 
vahio  or  the  price  of  food.  If  all  rents  were  remitted 
to  the  tillers  of  the  better  lands,  this  would  not  alter  in 
the  least  the  cost  of  procuring  food  from  the  poorest 
lands.  If  the  value  should  fall,  tliis  portion  of  the  sup- 
ply could  no  longer  be  ri\ised  with  a  profit,  and  conse- 
(juently  would  cease  to  be  raised  at  all.  So  that  if  the 
price  should  fall,  it  v/ould  have  to  rise  again.  The  ten- 
ants of  the  better  lands,  whose  rents  are  reuiitted,  would 


M  tliuHt!  olTcrod  li) 
country.     It  woultl 

-If  nil  tho  fftnnint^ 
Itivatod  by  t<(nant- 
liiH  Innil,  woultl  tho 
)d  to  be  liiyh(!r  than 
farms  nro  held  at  a 
n.'d  if  tho  liindlords 
I  to  the  tenants? 
uni,  at  first  sight,  to 
anybody  who  con- 
iinic  rent  ought  to 
9th  ([uestions   nui.st 

from  hinds  diflcring 

in  that  tho  cost  of 

;eou3  lands  fixes  the 

We  have  also  seen 

yields   no   rent.     Tt 

do  with  settling  tho 

rents  were  remitted 

s  would  not  alter  in 

)d  from  the  poorest 

1  portion  of  the  sup- 

a  profit,  and  conse- 

all.     So  that  if  the 

•ise  again.     The  ten- 

i  are  remitted,  would 


JlenU  not  a  Cause  0/  Iliijh   JVicf.i. 


299 


liiid  no  greater  ditllculty  than  boforo  in  dispoHing  of  their 
whole  crop  at  the  i»M  prirc.  '!'«>  nil'i-r  it  f«ir  h^*^  bfcauso 
now  they  "muld  an'ord"t<i  do  .so,  would  .simiily  Ito  to 
hand  over  tit  .■sharper  men  gains  that  were  fairly  their 
iiwn.  We  may  safidy  hold  that  they  would  make  no 
such  mistakf,  and  that  oven  if  they  did,  tho  lowered 
price  would  not  last  many  days. 

Kent  as  a  payment  to  the  owner  of  a  nattjral  agent  by 
I  lie  employer  using  it,  may  well  enough  be  regardctl  as 
a  part  of  the  cost  to  tht!  latter  of  the  product  he  olitains 
from  it:  the  more  ho  pays  in  any  given  ca.se  the  less  his 
piutit.  I»ut  this  is  only  half  of  the  case.  The  reason 
wliy  tho  eiiiployer  pays  rent  is  the  fact  that  he  gets  tho 
use  of  a  corresponding  advantage.  For  the  special  item 
of  rent  in  his  outlay,  ho  expects  to  have  an  ecpiivalent 
special  item  in  his  return,  —  namely,  tlie  economic  rent 
yielded  by  the  natural  agJMit  of  which  he  has  the  u.so. 

Of  the  true  cost  of  production  that  fixes  the  voluo  of 
tho  commodity,  it  ought  to  bo  clear  that  rent  is  no  part. 
Tho  cost  to  which  the  voluo  must  conform  is  that  of  tho 
last  needful  addition  to  the  supply.  The  last  needful 
a<ldition,  whether  obtained  by  extending  cultivation  to 
poorer  lands  or  by  higher  cultivation  of  the  lands  already 
in  uso,  is  obtained  free  of  rent.  We  conclude,  then,  that 
even  if  all  rents,  in  the  sense  of  payments,  were  remitted, 
economic  rent  would  still  continue  to  accrue,  and  wcmld 
simidy  remain,  as  extra  profit,  in  the  pockets  of  the  em- 
ployers having  the  use  of  the  superior  natural  agents: 

We  sec  then  that,  instead  of  rent  causing  the  product 


';  ! 


'i 


aoo 


J\>litieal  Economy. 


to  Imvt!  II  liiyh  viiIum,  it  is  ratlitT  tho  liinh  vulu«>  tliiit 
niakfs  tlu)  runt  iHmHih'.o.  Tho  lii^'li  viiliiu  iiiul  tins  rout 
that  go«H  with  it  tin)  hoth  dun  to  th»!  M(!iir(ity  (»f  thu 
imtnral  nj,'tiiit  (or  nf  tho  HUiMfrior  i)orti<)iis  of  it)  in  coiii- 
piuison  witli  tht!  (Itiimiiid  for  its  iiroduct.  Tlit)  strong? 
thduarnl  keepH  tho  valuo  of  tho  product  nhovo  the  point 
that  wouhl  corrospond  to  tho  cost  of  producing  it  undor 
th(!  most  fft.'orablo  conditionH:  that  U  to  Btiy,  tho  cost 
of  ohtniniiij,'  it  from  tho  most  productive  sourcos  within 
roach,  by  apjdyinK  hihor  to  thoni  \ip  to,  hut  not  hoyond, 
tlio  point  of  hiKli(!Ht  proi>ortional  return.  As  Hoon  os 
vahio  is  Hii'li  that  production  from  any  natural  ngont 
can  bo  pushod  hoyond  this  point,  with  ordinary  profit, 
that  natural  agent  has  begun  to  yield  ient.  So  that 
rent  follows  value,  not  value  rent.* 

»  There  1h,  however,  oiiu  form  of  rent  of  which  UiIh  Ih  Imrdly  tnin, 
nt  leaHl  to  the  full  extent.  1  refer  to  tlie  rent  of  laml  iiMe.l  for  iiiaiui- 
faelurhiR  purixmeH  in  and  about  cities.  To  a  considerable  extent 
theso  rents  are  duo,  not  to  any  peculiar  lulvantaKe  jMWHeHHed  by  tho 
laml,  in  and  of  itself,  for  the  puri>one«  to  which  It  Ih  applletl,  but  to 
the  fact  that  it  coulil  be  let  at  the  Bnine  rent  for  other  purposes. 
Many  kinds  of  manufacture  can  hardly  b«i  carried  on,  at  least  on  tho 
modem  scale,  at  a  disUince  from  the  great  centres  of  population  and 
connnerce.  The  advantage  lies  as  nuich  in  the  nu're  agKregation  of 
men  as  in  the  patural  Illness  of  the  place.  But  the  agKr<'Kiili""  "'  ">•'» 
causes  the  land  occupied  by  the  necessary  buildings  anil  the  dwellings 
of^the  workmen,  to  1k!  at  a  scarcity  value  anil  to  conmiand  a  consider- 
ablo  rent.  For  this  rent,  so  far  as  it  Is  unavoidable,  the  employer  and 
his  laborers  muni  be  comiuuisated  in  the  value  of  their  product.  Of 
course  any  rent  of  nianufacturinj,'  sites  that  is  due  to  special  natural 
advantage  for  the  punsise,  follows  the  ordinary  rule,  — b«'lng  offset  by 
tho  extra  return  which  the  advantage  brings. 


lifc .        ., 


Jin^roveiiuntt  Tciut  to  Uatun  JientH. 


301 


n  high  vuhiii  that 
iiliu)  iiiitl  th)!  rout 
10  Hciircity  (tf  thtt 

lOIIH    Uf    it)   ill    (Hill- 

luct.  Tlio  strtdig 
t  nhovi)  tho  point 
[iroiliiiiiig  it  under 
m  to  Hay,  thu  cost 
,ive  sources  within 
(»,  luit  not  licyond, 
:uru.  As  soon  os 
nny  nnturnl  ngont 
th  crlinary  profit, 
ilil  ;ent.      So  that 


ilch  UiIh  Is  Imnlly  tnir, 
i(  liiiul  UMi'd  fur  iiiiiiiu- 

a  conHi(K'ritl)l(!  I'XU'iit 
itiiKti  jMWHCHHt'il  by  llio 
vh  it  Ih  applii'd,  but  to 
It  for  oilier  imrpoHcs. 
riitil  oil,  i\t  leant  on  llin 
iitreH  of  iio|mlutloii  niul 
lu)  men!  aggregation  of 

the  aggregation  of  men 
illiigH  anil  the  dwellings 
to  command  a  coiiHlder- 
lablc,  the  employer  and 
le  of  their  product.  Of 
H  due  to  Hpccial  natural 
y  rule,  — b«ing olfsot by 


11.  Improv«m«nti  In  Farming  Leiun  Rent*.  ~  nniit.  ur 
wtj  liavo  Kci'ii,  (l('iM!nil.s  iiiiiiu'iiiali'ly  mi  llu'  vaUn?  uf  fauu 
Lidihicn.  Kvcry  riso  of  natural  vahio  iiiiphi's  a  riwi  of 
rcniH.  Itaihvays  Ii'shhii  rents  in  tin  rrowtli'il  poriMins 
of  thu  worhl,  hy  MUpplyiny  tlio  iiihaltitants  with  cln'iiiicr 
food,  Any  other  agenc^y  tliat  toiids  t«»  lower  thu  vahiu 
of  farm  produce  has  tho  samo  tendency  to  reduce  r«nt. 

Of  course,  ther(tft)re,  all  agricultural  iiuprovcinentH 
have  this  tendency.  Tlii'y  IcH.scn  the  cost  of  food,  just 
as  inventions  in  manufacturing  lesson  the  cost  of  manu- 
factured goods.  Hut  their  action,  esiieciftlly  in  its  bisaring 
on  rent,  is  less  siinidu  than  that  of  improvements  in 
manufacturing.  They  nr3  peculiar,  in  that  they  allecl 
the  value!  of  food,  and  therehy  tho  rents  of  tlie  hotter 
lands,  not  in  proportion  to  their  ell'ect  o:i  agriculture  as 
a  whole,  hut  in  proportion  to  their  efl'ect  on  the  cost  of 
that  part  of  tho  nocossary  food  supply,  which  is  most 
diflicult  to  procure. 

Agricultural  improvements  are  of  two  general  classes. 
Those  of  one  class  save  labor  in  farming,  hut  add  nothing 
to  the  croj);  for  example,  tho  gang-plough  or  tlie  icaping- 
niachiiie.  Those  of  the  other  chiss  add  to  the  pioductive- 
lu'ss  of  the  land,  but  without  lessening  the  labor  retiuiicd 
for  cultivating  a  given  area,  for  example,  tho  introduc- 
tion of  rotation  of  crops  or  tho  discovery  of  now  f((rtil- 
izers.  Ijibor-saving  machinoH  tend  to  lower  the  value  of 
food  simply  in  tho  ratio  in  which  they  lessen  tho.  cost 
of  raising  it  on  tho  least  advantageous  lands  in  use. 
Improvements  of  the  second  kind  have  this  etloct  also ; 


■'J 


•f 


'^ 


I 


■ 


302 


JUiiif'il   AVoMUM^. 


Iiiit  tht-y  \my  K"  fiirtlicr  im«l  niukt'  tho  lultlvatlon  of 
thu  iHM.ri'Hl  liiiitlH  iii'otllt'MM  11)'  iiicn'UHiiiK  ih.-  vrn\>  fn.in 
a  «ivt'ii  ami.  tlu'V  iiiiiy  iiiaki-  a  MinalliT  area  Niilli«  ifiil 
Any  imi'iovi'iiH'iil  wliiili  ^*lii.ulil  dti  llii-*  w.ml.l  lowt-r  tin- 

vahm   t.f   f 1.  aii«l  n.iiH.'.iu.-nlly  runt,  in   two  «li«tin«t 

wiiyH:  llfHt.  I)y  ;iiakin«  a  iialurully  U'tU-r  KhmI  tlu-  n-yn- 
lator  t»f  fOHt ;  nocomlly,  by  incrfiiHing  tlio  iirtKlutaivenimH 
of  lliiN  land 

l»y  way  of  illuMirntion,  lot  n«  Hniijiosc  tlio  HUiU'Iy  <'f 
food  for  a  roiiinimiily  Ih  drawn  fK'iu  lliir.'  ^rndi-ft  of  lan.l; 
and  that  llio  (luaiility  of  lalu.r  \vlii<li  i.rodiiccH  ton  IniMh- 
c<l»  from  tho  p-Kin-Nt  (^rado,  jtrodmt'H  twcdvc!  and  (iftt'i'n 
l)UiHludN  fronj  tlw  other  two  ^nidi's  n-HjM'ctivLdy.  01 
conrsf,  tho  vahio  must  Iw  such  ns  to  moko  tt-n  hiisholH 
flutVu-icnt  to  alVord  ordhuiry  waj^oH  and  profits  for  this 
hihor.  That  hciiij,'  so,  tlio  price  of  two  Itushels  in  every 
twelve,  or  one-sixth  of  the  erop,  rained  on  tlie  seeond  ^rade 
of  land  is  rent;  and  the  sanu!  of  every  third  hnshel  raised 
on  tho  loHt  gradu.  If  tho  price  Iw  ono  dollar  a  hushd, 
there  is  ft  rout  of  tw(»  dollars  for  every  twelve  hnshels 
ruiHod  on  tho  second  grade,  and  live  »U)llarH  for  every 
fifteen  l)iishels  raised  on  the  host  grade. 

If  now  a  labor-saving  improvement  lessens  by  ono-lifth 
tho  outlay  riMiuired  for  raising  these  4uantities,  it  will 
lower  the  price  to  eighty  cents  a  bushel ;  the  money  rent 
of  the  second  grade  will  fall  tc  a  dollar  nnd  sixty  cents 
for  overy  twelve  bushels  jiroduced  from  it;  and  that  of 
the  best  grade  to  four  dollars  for  every  lifteen  Imshels 
produced  from  it     Tho  saving  in  outlay  ia  tho  same  lor 


tii»itrovfmtntn   Tnul  In  I^m»»   lUnln. 


'M\ 


lhi>  lultlviltinti  «)f 
>iuK  llif  <n»l>  fl"ln 
|i*r  urt'ik  KiilUi'ifiit. 
iH  wuiilil  Itiwt'r  ill*' 
I,   ill    two  dlHtillCt 

Lur  IuimI  tilt'  rttgu- 
Lho  iiriKlurlivummH 

i<m«'  tlu)  Hinn>ly  «>f 
rt'i'  grmU'it  of  lun.l; 
[triMluccH  ten  I»um1i- 
twt-lvti  and  liflft'ii 
rosiM'ctivt'ly.     Of 

Illllkt!    It'll    llllsluilH 

h\  jinilits  for  lliiH 
(»  ImisIk'Ih  ill  t'vcry 
Ml  llu!  Hi;c;itii(l  j,'rft<lt-' 
tliinl  liuslutl  raiscil 
1110  iU»llar  ft  buHl'i'l, 
L'ry  twelve  1»iih1i('1» 
•  (lolliirs  fitr  every 
[itl(\ 

le.sHoiis  by  oiie-liftli 
(iuaiititifH,  it  will 
el ;  the  iiioiioy  rent 
Iftr  and  sixty  rents 
Din  il ;  and  that  of 
airy  lifteon  luisliels 
tiny  is  tlio  same  for 


alt  t)m<n  (;rudi'H  (>n\y  twn  didlurM);  tint  tlin  fall  «tf  priru 
all'i'i  iH  till'  iM'ttur  laiidH  mure  tieuvity  lliaii  the  |Hi«iruNl, 
lioi'iitiMt  their  crop  in  ({renter. 

If,  iiinteati  of  a  lalHtr-miviii^  iliiproVeliielit,  a  new  fef* 
tili/er  l)e  diiri*v«>red  that  inireuM's  hy  way  one-tliird  the 
|itiM|iit'tiveiieNH  «)f  labor  a|i{ilied  to  aKtiiiiUiire,  the  reNult 
may  be  to  make  iht*  ciiltivatioii  of  tin'  |i(iuri"it  ({lade  no 
luii({i'r  iieceHNary.  In  that  <'a»4i>  the  value  will  fall  to  cur- 
reHpond  wiOi  the  iomI  of  piutlticin^  fund,  with  the  aid  of 
the  now  fortili/er,  fr«»ni  the  MH'ond  ({rade  of  laml'  The 
lidior  that  previouHly  ruiNed  twelve  biisheU  on  thin  land 
will  now  rniMc  nixteeii ;  but  the  Htxteeii  biiMlwN  will  have 
till!  Hniiie  priet'  that  ten  had  previiiiinly ;  namely  i^tO,  or 
♦i'Jl  ( ciitH  ft  biislnd.  This  It'iivi's  nnthin((  over  an  rent. 
Tlu'  same  (piniittty  of  labor  will  imw  rai«*t'  twenty  biiMli- 
.'Is  nil  tlio  k'Ht  land;  bnt  tlio  price  of  Hixtien  luishelH 
will  be  re(juired  to  pay  ordinary  waj^es  and  prolit.M,  leav- 
iuH  only  the  new  reduced  prie*!  of  four  biishelH  for  rent. 
The  rent  of  the  Kecuiid  ({rathi  disapjK'arH  entirely,  and 
that  of  the  best  lands  is  reduced  to  one-half  of  the  old 
amonnt,  namely  $2M),  for  the  ({iveii  outlay  of  labor. 

It  is  well  to  note  that  the  fall  of  rent  in  this  enso  is 
not  (liio  to  tlio  tftct  that  the  poorest  land  ceases  to  be 
cultivated.  Tlio  fnll  of  rent  and  the  abamlonment  of  the 
poorest  lands  are  Itoth  cU'ects  of  the  same  cause,  namely, 
the  decrea.sed  value  of  food.  The  same  etl'ects  would 
follow  from  an  eiiuul  fall  in  value  caused  by  chenpened 

'  Strictly  tlilH  rcKult  rrqiilnH  thai  not  ail  cvi'ti  of  tlie  Htcoml  jfraHe 
shall  Imi  nvc'ili'tl  fur  cullivaliuu. 


i 


!!f 


;I1 


r 


304 


i,„}H.rtiill.iii  of  f.H.  I  irinw  olhor  n'Kl.mt.  In  rii«'l.  H  i»»«« 
Ini  Mia  ul  «n  itactly  i«rlniltur.il  liiiprnv.-iii.-iiU  tlmt 
lh.7  huvM  «'.'  hail  III  pni.ti'i'  ll>"  •""•'t  "'  u.  tiirilly 
|owi.riii«  til"  v«lu«  <.f  furtii  ir.Hlu.U.  Tim  urt  of  tilluu.' 
Urn  ni..loul.f.".ny  iiio'lo  pniun-M ;  but  in  cuiiii«rim.ii  witii 
iiiniiufuitiiriiiK  oml  lmii<i|Kjrtntion  tlio  proKn-M  liiw  l»«'i. 
vury  nlow.  Tli»  ImpruVDnndilii  in  furniliiK  wc.ulil  iint. 
uf  ih.'iiiwlvoN.  hovM  tloiu!  iiKtrM  thrm  t«»  r.-tnnl  lli«'  rimt  o( 
n-iilM.  Tl."  umil  and  Htrikii.K  Hf.-.  U  on  tli"  vulu.*  of  farm 
|,ro.lu.l«.  lui.l  .oiiM-fiUKnlly  011  ri)nt«,  l-ivn  Im-.m  liroiighl 
ulM.iit  liy  lli«!  wniicl.'rfiil  .lu'iUKUimK  of  tmnHporUtion. 

18  Eallwtyt  and  R«nt  —  Tlio  oi>l>U«'tttion  of  «Umm  to 
tn.iiH|.urtatioii  Un  kept  down  tli«  vnUui  of  fmnl  in  two 
wiiyw :  limt,  l.y  onftl.liiiK  inioplo  to  niovw  away  mHily  iind 
ch.uiply  from  tli«  crowditd  partH  of  tlm  worM  t<.  rfgionn 
wluiri!  p.)piilftti«'ti  i«  itpnr««;  m«con<ny.  I»y  «'n«ddinK  tho«.t 
who  romiiin  in  tho  thickly  iKioplod  pnrtn,  t<.  dmw  tlidr 
foiHl  ttiiil  nmUifiuU  from  di»tunt  plttcos  ut  uliglit  c«mt. 
Thu  Hrnt  of  tliuno  offecti  has  Injon  Bpokcn  of  ulruudy. 
Thti  MCf'tnd  in  oiiunlly  imp«)rtunt. 

Th«  Kriiut  ubunduncc  ol  fertile  land  in  Aincriciv  would 
not  k»!«p  Ih-  vahio  of  farm  products,  down  in  all  partN 
evun  of  our  .  onntry,  if  it  wuro  not  poBHiblc  to  carry  tin- 
product  with  litllo  labor  from  the  weBtern  farmii  to  the 
cn.w.lod  di»tricte  of  the  contro  and  1^:881.  Farm  proiluctH 
ore  bulky  and  heavy.  Without  iKiwerfnl  means  of  trons- 
porttttion  thoy  could  not  be  moV(Ml  fur  except  at  great 

COAl. 

Tliis  was  the  ordinary  cobc  in  old  times.    Before  the 


"srr 


Kt*^t  />i»K'/»  HiHlt, 


III  fnot,  it  iii(i«t 
i|)ri>vi*iiM'iitN  tliut 

I'tl.'ct  of  urtiiillly 

Till'  iirt  of  ttlliiu<' 
r<iiii|>uriH<iii  with 

Itrot^ri'MN  liiiN  \m'\\ 

m\\\^  woiilil  not, 
n-lanl  tin*  rimi  o( 
thu  viilmt  of  fiiriii 

ivti  tHHui  liroiigitt 
tmiiH|iortAtUm. 

Utioll    Uf   HtOillll    to 

ID  uf  fnml  ill  two 
«  ftwciy  iuiHily  luul 
11  worlil  to  rt'gioiiH 
liy  ifimlttiiiK  thiwit 
irt»,  to  ilriivv  tli«ir 
101  at  Hlight  cuHt. 
pokuti  of  ulruady. 

ill  Aiiu'riciv  would 
down  ill  all  purtH 
BHihle  to  carry  tin' 
Hturii  taruiH  to  till! 
It  Farm  proiluctH 
fill  moaiiB  of  traiiB- 
ur  except  at  great 

times.    Before  the 


iiitriMtui'tioti  of  cnnnU  and  railwAjri,  ||  WAi  OMtly  mA 
diHlciill  to  .iirry  thiii««*  froiii  oih-  plai-n  t,,  another,  ttjiiept 
whirt'  trannporfftfioii  by  ».•;»  or  river  wtin  p.wMihK  To 
triinHport  wh.at  even  a  I'lindn-il  milm,  l,y  moajia  i»f 
'liiiiight  aiiitiiaiN,  addod  i!iiortiioii»|y  to  iu  («wt.  ('(nii»«- 
•Hn-ntly.  in  a  legion  ..f  dnim*  population,  fnrniiii|,'  Imida 
might  yiidd  a  lUMnidi-raldu  mnt,  uvmii  though  aluindaiit 
liiiid  could  Ihi  ohtaiiHul  n-iit  froe  in  rcginnn  lompurutivuly 
mar. 

Hut,  th«i  iinprovtMiMsiitH  in  Inuinportatioii  niado  in  tin- 
ia.Ht  lifty  y»'«rH  have  changrd  all  thin.  !t  iis  now  poNHiidi* 
to  larry  fmtd  and  othttr  prothntM  of  labor  lung  distant .h 
at  Mlight  coHt.  A  barnd  of  ||i»ur  in  now  carriwl  unu 
ihouiHuid  iiiih'H  by  land  for  tho  Hun;  of  one  doljur.  The 
application  of  Mtcain  to  traiiHportation.  both  liy  land  and 
l-y  water,  haH  in  ollcct  brought  the  imint  distant  placcH 
very  cIobo  togetlmr  for  puriMmen  of  exchange.' 

The  effect  on  agricultural  rcntu,  eHjMHially  in  the  Old 
World,  has  boon  very  marked.  Wheat  may  ii(»w  be 
iiinied  from  Dakota  t<»  IaiikIoh  for  leNH  than  it  eogt 
f«»rnierly  to  carry  it  fr(>m  the  centre  of  Knglaiid.  Agri- 
I  ultural  reiitH  have  therefore  declined  very  much  in  the 
MritiHh  iHlandH,  and  are  likely  to  d.icliin)  Htill  farther. 
Kven  in  the  United  State.n  the  chea|R(iiiiig  of  traiiHport- 
ition  has  produced  ell'ecUi  hardly  hms  Btriking  on  the 
value  of  landH  in  the  older  States.     Many  landH  that 

'  Mr.  F:<lwfcnl  Atklimori  «:()m|mU'H  that  tin-  Inlnir  of  mic  man  is 
iHiw  mifflcli'iit  Ui  traiw|Mirt  tlui  wlicai  Hiipply  for  ii  thouMaml  imthoiii 

'' I>ttlt"t*  t(»  N«w  York,  aillHUiicv  of  1700  \\\\V^».— hiatrUmUun  i\f 

I'rixtitctt,  jiagu  280. 


I' 


son 


lolitical  Economy. 


formerly  yielded  ft  good,  if  not  ft  bountiful,  n;turn  t-. 
savings  expended  upon  them,  have  now  (iuite  fallen  out 
of  cultivation.  The  opening  up  of  the  great  West  has  «.. 
lowered  the  value  of  farm  produce  that  there  is  little 
profit  to  he  made  now  in  ordinary  farming  in  the  East. 

The  present  condition  of  things  will  last  until  the 
virgui  soils  of  the  West  and  North-west  have  been  so  far 
exhausted,  that  the  manuring  and  other  burdensome 
processes  necessary  in  the  older  countries  have  to  he 
resorted  to.     When  that  time  comes  rents  will   begui 

to  rise  again. 

It  remains  only  to  add  the  obvious  remark  that  a 
decline  in  the  value  of  farm  products  caused  by  cheap- 
ened importation,  is  much  more  disastrous  to  agricultural 
rent  than  a  decline  caused  by  home  improvements  in 
agriculture.  In  the  latter  case,  the  better  lands  have  at 
kast  the  benefit  of  the  improvement  as  a  partial  offset 
to  the  fall  in  value;  but  in  the  former  case  the  fall  in 
value  is  wholly  at  the  expense  of  the  landlords.  Thus, 
if  the  fall  to  eighty  cents,  spoken  of  on  page  302,  were 
caused  by  cheapened  importation,  the  rent  of  the  best 
land  would  fall  to  two  dollars  instead  of  four. 

13.  Rent  of  Building  Lands.— City  rents  are  more  con- 
spicuous in  this  country  than  agricultural  rents.  The 
modern  tendency  of  population  is  toward  the  towns,  ana 
the  growth  of  building  rents  is  correspondingly  rapid. 
The  sum  paid  for  the  use  of  a  building  in  a  city  consists 
of  two  parts.  One  part  is  simply  a  payment  for  the 
use  of  the  building  itself,  which  is  a  product  of  labor. 


■- — "mm 


Iteid  of  ('it  11  htnuh. 


307 


[mtiful,  ruturii  to 
w  (iuitc  fiillt'ii  out 
great  West  lins  ho 
liat  then;  is  littlo 
iiig  in  the  Kast. 
n\\  last  until  the 
3t  have  been  so  far 
utlter  burdensome 
mtries  have  to  be 
1   rents  will   begin 

)ua  remark  that  a 
J  caused  by  cheap- 
rous  to  agricultural 
I  improvements  in 
etter  lands  have  at 
,  as  a  partial  offset 
ler  case  the  fall  in 
e  landlords.     Thus, 

on  page  302,  were 
le  rent  of  the  best 
ad  of  four. 

rents  are  more  con- 
ultural  rents.  The 
,vard  the  towns,  and 
rrespondingly  rapid, 
ng  in  a  city  consists 

a  payment  for  the 

a  product  of  labor. 


Tiie  other  jiart  is  for  the  use  of  the  land  on  which  the 
buihling  stands.  The  first  is  mainly  repliicrment  of  sav- 
ings with  interest  thereon;  the  .second  is  true  rent. 

Th(!  rent  of  city  lots  is  determined  by  the  .same  gonoral 
|irinciples  as  the  rent  of  agricultural  lands.  The  chief 
dillcrcnce  is  that  here  we  start  usually  from  a  condition 
in  which  the  land  is  already  yielding  rent  for  agri- 
cultural purposes.  Of  course,  land  will  not  be  turned 
intt)  building  lots  until  there  is  a  [trospect  of  its  yielding 
sumewhat  better  returns  than  it  yields  as  farming  land. 

The  new  building  lots  in  the  outskirts  of  a  city  may 
1j(3  regarded  as  having  their  rent  determined  rouglily  by 
the  agricultural  rent  of  the  land.  As  (juickly  as  tliere  is 
a  gain  to  be  made  Ijy  converting  farming  land  into  build- 
ing lots,  we  may  assume  that  the  conversion  will  ordi- 
narily be  made.  At  the  meeting  lino  of  the  two  kinds 
the  difference  of  rents  must  always  be  slight. 

Building  lots  nearer  to  the  centre  of  the  town  have  of 
course  many  advantages  for  business  purposes  over  these 
newly-made  lots.  The  economic  rent  of  each  more  central 
lot  is  equal  to  the  rent  of  an  equal  area  in  the  outskirts, 
plus  the  equivalent  of  its  special  advantages  over  the  lat- 
ter. Since  the  rent  of  newly  converted  lots  must  usually 
be  small,  we  may  say  for  brevity  that  the  rent  of  central 
lots  is  a  sum  equivalent  to  their  superiority,  for  the  uses 
to  which  they  are  put,  over  equal  areas  in  the  outskirts. 

This  is  a  question  of  business  advantage  mainly. 
Other  things  being  equal,  the  merchant  wlio  has  his 
store  in  the  crowded  thoroughfare  can  sell  much  more 


"wnm 


-.i-<!»?»5I£Ma*F<=^ 


I 


808 


J'blitical  Kcommy. 


than  the  one  who  has  Ins  store  in  a  remote  corner  of  the 
town.  \Vithout  charging  higher  prices,  he  can  make 
mucli  larger  profits. 

If  he  does  not  own  the  ground  he  occupies,  the  owner 
may  exact  as  rent  the  full  e-iuivalent,  in  the  vi(«.w  of  busi- 
ness men,  of  this  special  advantage.     The  competition  of 
business  men  for  the  possession  of  the  best  sit<;s  may  safe- 
ly be  counted  on  to  enable  him  to  do  tliis.   Thus  we  have 
for  the  rent  of  business  sites  in  cities  the  same  rule  of 
extra  profits  that  we  found  to  apply  in  agricultural  rents. 
14.  Rent   of  City  LoU  used  for   DwellingB.  —  In  the 
case  of  city  lots  used  as  sites  for  dwellings,  we  cannot 
lay  down  any  so  definite  measure  of  rent  as  in  the  case 
of  business  sites.     Of   course,  lots  that  possess  si)ecial 
advantages  for  business  purposes  arc  not  likely  to  be  let 
for  resid°ences  at  a  lower  rent  than  could  be  obtained  for 
them,  if  applied  to  the  other  use.    Usually,  however, 
dwellings  and  business  edifices  occupy  separate  quarters 
of  the  city ;  so  that  the  rule  of  extra  profit  can  hardly  be 
applied  universally  as  the  regulator  of  city  rents. 

In  the  case  of  lands  adapted,  or  held  to  be  adapted, 
for  dwellings  only,  rent  depends  on  the  demand.  The 
iiuestion  is  simply  how  much  extra  the  people  are  will- 
in<T  to  pay  for  the  privilege  of  living  in  the  most  de- 
sirable streets  or  neighborhoods.  Here,  as  in  the  case 
of  lots  used  for  business  purposes,  we  take  the  lands  ni 
the  outskirts  of  the  city  as  our  starting-point.  Those 
lands  may  be  hired,  as  sites  for  dwellings,  for  about  the 
same  rent  as  they  yield   in  agriculture.     The  better 


I 


Unit  <>/  Vity  Ttanih, 


309 


lote  corner  of  tin 
ics,  he  can  make 

scupics,  the  owner 
I  the  vi(!W  of  busi- 
'hc  competition  of 
est  sites  may  safe- 
lis.   Thus  we  have 
^  the  same  rule  of 
agricultural  rents. 
Brellings.  —  In  the 
ellings,  we  cannot 
•ent  as  in  the  case 
lat  i)osscss  special 
not  likely  to  be  let 
lid  be  obtained  for 
Usually,  however, 
ly  separate  {[uartcrs 
irofit  can  hardly  be 
of  city  rents, 
leld  to  be  adapted, 
the  demand.     The 
the  people  are  will- 
nc  in  the  most  de- 
lere,  as  in  the  case 
re  take  the  lands  in 
irting-point.     Those 
llings,  for  about  the 
ulture.     The  better 


sites  will  have  their  excess  of  rent  above  these,  set  by 
the  general  estimate  of  tho  .social  and  otht-r  advantages 
(if  living  upon  tluun.  If  there  are  a  hundred  of  tho  best 
.sites,  the  rent  of  them  will  be  .set  at  such  an  amount 
as  a  hundred  pctrsons,  and  only  a  liundred,  can  be  found 
to  pay.  If  later  the  number  of  iiersons  willing  to  pay 
this  amount  of  rent  should  increase,  then  the  rent  of 
these  lots  will  rise  to  a  point  at  which  only  one  hundred 
a[)plicants  for  them  can  bo  found. 

Cities  are  becoming  rather  centres  of  trade  than  places 
of  residence.  The  railways  enable  men  who«e  work  lies 
in  the  city,  to  have  their  homes  miles  away  in  the  coun- 
try.   This  fact  checks  the  rise  of  house-rent  in  ihe  cities. 

15.  The  Price  of  Land.  —  Land  that  yields  rent,  or  is 
expected  to  do  so,  may  evidently  be  bought  as  a  mode  of 
investing  savings.  The  price,  through  %e  competition 
of  buyers,  tends  to  be  equal  to  the  present  worth  of  the 
exi)ected  rent.  That  is  to  say,  it  tends  to  be  such  a 
sum  as  puts  the  purchase  on  a  level,  in  the  opinion 
of  investors,  with  other  modes  of  getting  interest  on 
savings.  The  price  of  any  piece  of  ground  depends, 
tlierefore,  on  two  things:  namely,  the  amount  of  rent 
it  is  expected  to  yield;  and,  secondly,  the  prevailing 
rate  of  interest  on  other  investments.  The  lower  the 
rate  of  interest  the  higher  the  price  of  land  is. 

Since  the  future  rent  is  always  uncertain,  dealings  in 
land  are  apt  to  be  speculative.  The  price  changes  with 
every  change  in  tho  general  opinion  as  to  the  future 
course  of  the  rent 


"  '^a«gtfa«g?>gMlie*iA«JWP-«All'jKaMmfauBglBS'i 


CHAPTER   XXIV. 

CONSEQUENCES   OF   DIMINISHINO   RETURNS. 

1.  Effect  of  Diminishing  Returns  on  Wages  and  Profits.— 

The  law  of  diminishing  returns  has  an  obvious  boftring 
on  the  course  of  wages  an.l  profits  in  a  country  as  its 
population  increases  in  numbers.  When  once  the  popu- 
lation has  reached  the  stage  at  which  the  best  sources 
of  food  and  materials,  worked  at  their  point  of  maximum 
return,  are  no  longer  sufficient  to  supply  the  whole  de- 
mand, individual  wages  or  profits,  or  both,  must  tend  to 
decline.  Further  additions  to  the  number  of  producers 
are  not  followed  by  correpponding  additions  to  the  gen- 
eral product  of  industry,  unless  the  natural  tendency  to 
diminishing  returns  in  the  extractive  industries,  be  offset 
by  increased  productiveness  of  labor  in  other  ways. 

Of  course  the  falling  off  in  proportional  return  does 
not  begin  simultaneously  in  all  the  extractive  industries. 
The  different  kinds  of  natural  wealth  are  nowhere  in 
equal  ratio  to  the  human  need  of  them.  The  resources 
of  some  kinds  may  be  practically  unlimited;  but  there 
are  others  that  are  never  so.  Among  the  latter  must  be 
placed  the  most  productive  sources  of  the  better  varieties 
of  food,  fuel,  and  clothing,  —  the  articles  of  prime  neces- 
310 


Effeda  of  Dimininhinij  Itvturna, 


311 


3  RETURNS. 

ages  and  Profits. — 
n  obvious  boariii},' 
I  a  country  as  its 
en  onco  the  popu- 
i  the  best  sources 
point  of  maximum 
ply  the  whole  do- 
joth,  must  tend  to 
niber  of  producers 
litions  to  the  geu- 
atural  tendency  to 
industries,  be  offset 
in  other  ways, 
rtional  return  does 
:tractive  industries. 
;h  are  nowhere  in 
3m.     The  resources 
ilimited;  but  there 
the  latter  must  be 
the  better  varieties 
iles  of  prime  neces- 


Hity  for  (iverylnuly.  In  tlie  pHMhiction  of  these  the  point 
of  diminishing  returns  is  reached  at  a  comparatively 
early  stage  in  the  growth  of  population. 

Now,  in  vogioio  where  this  stage  has  been  passed, 
the  opportunities  for  making  profit  at  any  given  rate 
of  wages  are  governed,  not  by  the  general  or  average 
pntductiveness  of  labor,  but  by  its  productiveness  under 
the  conditious  which  have  to  be  faced  in  obtaining  the 
last  additions  to  tlie  product  of  industry.  This  is  a 
l)<)int  of  great  importance  in  relation  to  wages  and  profits 
in  a  country  where  increase  of  population  is  attended  by 
diminishing  returns.  The  amount  a  given  number  of 
additional  laborers  can  add  to  the  product  of  industry 
constitutes  the  inducement  open  to  employers  for  engag- 
ing their  services.  No  matter  how  much  other  men  are 
producing,  the  new-comers  must  stand  on  the  basis  of  the 
addition  their  own  exertions  can  make  to  the  general 
product. 

Compelled  by  the  nature  of  the  case  to  apply  their 
labor  to  inferior  natural  agents,  or  under  less  favorable 
conditions  than  the  previous  laborers  have  done,  they 
cannot  produce  as  much  as  the  same  number  produced 
previously.  It  follows  that  either  their  wages,  or  the 
profits  of  their  employers,  must  be  less  than  those  pre- 
viously earned  by  equally  capable  producers. 

But  this  is  only  a  small  part  of  the  case.  Under  free- 
dom of  competition,  there  cannot  be  one  level  of  wages 
and  profits  for  the  former  inhabitants,  and  another  lower 
level  for  the  additional  producers.    The  wages  of  all 


;'Wrcr»jt»«5«3ji« 


312 


Political  Economy. 


i 


equally  cnpiihlo  liilxirers,  and  tho  oiijiortunitieH  for  proHt 
o\\ti\\  to  ttU  emiilttjois,  must  l»o  roughly  equal.  Kquality, 
in  this  case,  is  lnouj^ht  about  hy  a  decline  of  all  wages 
and  jnfifits  to  the  level  of  those  obtainable  by  tho  achli- 
tional  laborers  and  their  emidoyers. 

What  is  lost  by  tho  general  body  of  producers  in  this 
way  goes  as  rent,  to  tho  owners  of  the  better  natural 
agents.  Conii)etition  forces  tho  employers  who  have  the 
use  of  tho  better  ojiportunities  for  production,  to  pay 
over  to  tho  owners  of  them  an  amount  roughly  e([uiva- 
lent  to  tho  economic  rent,  or  excess  of  product  due  to  tho 
special  advantage  in  each  case. 

For  example,  let  us  suppose  a  country  has  reached  the 
stage  of  diminishing  returns  in  her  chief  extractive  in- 
dustries, with  a  population  of  twenty  millions,  and  that 
the  population  goes  on  increasing  until  it  reaches  twenty- 
five  millions.  The  elfcct  on  wages,  profits,  and  rents  will 
depend  on  the  extent  to  which  say  the  last  million  falls 
short  of  adding  to  the  product  of  industry  as  much  as 
each  of  the  original  twenty  millions  produced.  Suppose 
they  add  only  nine-tenths  as  much,  then  it  is,  for  the 
employers  of  labor,  precisely  as  if  tho  whole  twenty-five 
millions  produced  only  twenty-five  times  as  much  as  this 
last.  Whatever  they  do  in  fact  produce  beyond  this  may 
be  claimed  by  the  owners  of  th?  natural  agents  as  rent. 
While  the  number  of  laborers  has  increased  in  £he  ratio 
of  20:  25,  the  product  from  which  profits  must  be  drawn 
has  risen  only  in  the  ratio  of  20  :  22J,  (t.  c.  20  :  25  x  ■^). 
The  balance,  whatever  its  amount,  is  rent 


mammmtim 


EffecU  of  Jnduatrial  Improvemtnta. 


313 


■tunitioH  for  prolii 
e*iual.  K*iuality, 
i:linu  of  all  wag<!.s 
lablij  l»y  tlio  addi- 

prnduccrs  in  this 
he  better  iiatural 
yrers  who  have  the 
)roducti()n,  to  pay 
it  roughly  e([uiva- 
product  due  to  the 

y  has  reached  the 
liief  extractive  in- 
inillions,  and  that 
it  reaches  twenty- 
iits,  and  rents  will 
!  last  million  falls 
lustry  as  much  as 
roduced.  Suppose 
then  it  is,  for  the 
whole  twenty-five 
es  as  much  as  this 
e  beyond  this  may 
ral  agents  as  rent, 
reased  in  the  ratio 
its  must  be  drawn 
(t.  e.  20  :  25  X  ^). 
rent 


2.  Diminiihing  Returns  Counteracted  by  Improvementa.  — 
1 1  is  obvious  that  industrial  iiuprovemeiits  of  every 
kind  have  an  eflect  preci.stdy  the  opi»o.site  of  that  just 
lonsidered.  Kvery  invention  or  discDvery  that  enabliss 
UH  to  product!  a  greater  (juantity  of  any  <'<immodity  liy 
a  given  amount  of  labor,  makes  the  industry  of  the  com- 
munity more  productive  than  it  was  Itcfore,  and  thus 
tends  to  raise  the  wages  and  profits  of  jtroducerH. 

The  same  effect  is  produced,  in  the  crowd(Ml  portions 
of  the  world,  by  the  importation  of  cheap  food  and  ma- 
terials from  other  countries.  This  le-^seiis  the  jtiessure 
on  the  home  sources  of  supply,  and  tlms  i)revent8the  rise 
of  rents  and  the  decline  of  wages  aTid  profits  as  the 
population  increases.  Herein  lies,  for  the  crowded  parts 
of  all  countries,  the  great  importance  of  improvements 
that  cheapen  transportation. 

We  see,  then,  that  the  actual  course  of  industrial 
returns  in  a  country,  as  its  population  grows,  dejKjnds 
on  the  question  whether  the  falling  off  in  the  propor- 
tional yield  of  labor  used  in  its  extractive  industries  is, 
or  is  not,  fully  counterbalanced  by  improvements  in  its 
industries  as  a  whole. 

The  rapid  and  wonderful  improvements  of  the  past 
hundred  years  have  apparetitly  more  than  ct  unterbal- 
ixnced  the  diminishing  returns  from  the  chief  natural 
iigents,  —  giving  us  for  ti.o  time  an  increased  return  for 
labor  and  waiting.  Whether  this  can  continue  much 
longer,  in  the  face  of  the  enormous  increase  of  popuhi- 
tiou  that  is  going  on  in  the  world,  is  at  least  ojjen  to 


■'ai! 


314 


JUitk'iil  Ki'itmmif, 


hi>i-ii)iiH  (luiilit.  DimuivurittN  mid  iiivuntiuiiN  nro  Hlrikiii^' 
ill  i\w'\x  vWw\m\  but  tlicy  iin^  Huinewhut  fitful  iiiid  uii- 
('(•rlaiii  ill  (heir  roiiiiiij,',  mid  t'lu'li  of  tlu'iii  iH  liiiiiU'd  in 
iH)|ili(atiiiii.  'I'lic  iKtinn  of  diiiiiiiiMliiiij,'  nituriiH,  on  tlm 
other  liaml,  tlioiigli  sili-iit  mid  j,'iiulual,  is  (•crttiiii,  uiiivur- 
Hiil,  nnd  ulwayn  proyruHNivi'.  Tliut  it  miiHt  in  tliu  mid 
pruvnil  ovor  hutnaii  iiigfiniity  hardly  rulniits  of  a  (hiubt.' 

3,  Checks  on  Increaae  of  Population.  -  IfoaHoii  tells  us 
that  tlit'i!'  is  a  limit  to  the  iiuinlier  of  iiihiihitaiitH  the 
worM,  with  its  limited  resoiirceH,  can  HiiHtaiii.  That  wo 
nimiot  now  .say  delinitely  what  the  limit  i«,  is  no  ground 
for  denying  its  e.xiHtonec.  It  is  hardly  crediblo  that  a 
thoiiHaiid  persons  can  over  find  sustenance  in  the  avorago 
sjiacu  now  occujiicd  by  one.  It  is  nuito  incredible  that 
a  million  .should  ever  do  so 

Now  the  limit  to  iii(re'..se  of  popiilaticm  will  bo  reached, 
not  by  a  sudden  sbyc'U,  but  by  the  cumulative  action  of 
dimiiiishiiig  ret';.  '      orecise  mrde  in  which  the 

arrest  of  increase  v, ..  about,  will  deiHjnd,  in  each 

country,  on  the  behu*.  i  inhabitants.     There  are 

two  altoruatives,  —  the  .ii.  aber  of  births  may  diminish, 
or  the  number  of  doatlip  may  increase. 

'  Tlionti  who  111(1111!  till!  eoiilrary  forget  how  largely  the  improved 
rtlurim  of  icci'iit  lliiit!i«  iiro  dan  to  niere  redlHlrlbutioii  of  population 
by  einignillon  to  new  countricR,  and  to  ciieaiK<nliig  of  tranHiKirtatlon 
TlifHo  are  (levlccH  that  iiiUHt  exhauHl  their  benedtH  comparatively 
Hoon.  There  are  no  more  New  WorldB  to  be  oiM'iied  up.  When 
America  and  AuHtralla  become  as  thickly  peopled  as  England  and 
Ikilglum,  cheap  tranHportallon  will  bo  of  comparatively  little  avail  n» 
a  ineiiuH  of  (Counteracting  the  offucUi  uf  dimiiiliiliing  returns  in  tbo 
ulder  cuuntriea. 


Chech  on  Incrtaw  »J  Jhputation, 


ai5 


iitidiiH  nro  Htrikiii^' 
hut  fitful  Kiid  uii- 
tliciii  in  limited  in 
11^  riitiiriiH,  on  tln^ 
1,  is  ctirtttiii,  uiiivur- 
t  mtiHt  in  thu  oiid 
iidniltH  of  n  doubt.' 
,  —  Ileason  Udl.s  us 
of  iidui))ilantH  i\w 
HiiHtain.  That  wo 
iiiit  is,  is  no  ground 
lly  cnidiblo  that  a 
anco  in  ibo  avorago 
lito  incredible  that 

ion  will  bo  reached, 
iniulutive  action  of 
jrde  in  which  the 
'ill  deiHjnd,  in  each 
bitants.  There  are 
rths  may  diminish, 
se. 

w  largcily  the  improved 
Hlribulion  of  i>(i|mliUioii 
Piling  of  tninHiMtrtatlon 
iH-iiulltH  coininvrativuly 
bt!  oiM'iind  up.  Wiien 
Mipit'd  as  Engiaiid  and 
parativoly  littlo  avail  aa 
iiiniulung  ruturns  in  tbo 


Till)  lirHt  of  thuHo  JH  cnlli'd  tlm  "  priidciitial  vhvrM  on 
l>o|iulation."  It  \H  a  check  that  is  alrfady  o|ifrativ<t  in 
cvrry  <ivili/;td  comtiuniiiy.  It  is  niiTfly  tliat  frcliiij^  of 
I  (ininion  |iitiili-nct!  and  ii'ganl  fur  tii<;  futuii\  wliii  h  pni- 
vents  iiitt'llij^ciit  young  jn'oplt!  frr»in  assuming  tin;  rare 
of  families,  without  having  th*.*  nutaiiH  to  providt*  an  ado- 
(|Uiito  HUpport  for  tliem.  As  nirniiigs  fall  oil'  throiigli 
th(t  a(;tion  of  diminishing  returns,  this  moiivf  may  hi; 
riiiiiiu'd  on  to  n.>Htri<'t  more  and  mom  tin*  numlter  of 
liirths  in  tivry  cnmminiily  whiTe  the  mass  of  the  pcoplo 
are  governed  by  pnidoine  and  fort'timught. 

Tiiis  clu'ck  evidently  rests  on  the  standard  of  living 
whicli  people  are  accustomed  to,  or  which  prevails  in  the 
social  group  to  which  they  belong.  Few  persons  will 
lightly  adopt  a  course  that  is  sure  to  tditail  loss  of  accus- 
tomed comforts  <»r  of  social  standing.  The  higher  the 
standard  of  living  among  the  mass  of  a  country's  iidiabi- 
tants,  the  slower  will  be  the  increase  uf  ita  numbers  and 
the  .smaller  its  eventual  po])ulation. 

This  principle  has  an  olivious  connection  with  the 
law  of  wages.  It  means  that  the  general  level  of  wages 
ill  each  country  depent's  in  the  long  run,  on  the  degree 
of  self-control  practiced  by  the  bulk  of  its  jteople.  Low 
wages  are  the  inevittible  result  of  reckless  increase  of 
numbers;  high  wages  are  inseparable  from  restraints  on 
increase.  Nothing  can  i)revent  wages  from  eventually 
reaching  that  level,  Ije  it  high  or  low,  which  the  moss 
of  the  laborers  themselves  look  upou  as  ade([uate  for  the 
support  of  a  family. 


'if 


rtsi 


816 


Mitieat  Keunotny. 


Tho  MH'nnil  or  "positivu"  check  ott  iiicrcaau  i>f  itoiiula 
tion  coiiius  into  piny  whurnvur  titu  tintt  iIovh  not  uxint,  ui 
Ims  |irovoil  too  weak.  Tlic  |iniilfntinl  check  nitit  through 
four  of  want;  thJH  c)n«  uctn  throii>,'h  want  itHnIf.  Where- 
uvur  niont  puoplo  uro  horn  than  can  lind  proper  nourish- 
mont  anil  slielter,  tho  deathrato  rises.  A  (lecnmsinK  pro- 
portion of  thonu  that  are  born  reach  maturity.  DiHeaflon 
of  all  kinih  multiply,  Hnding  ready  hKl^oment  and  ouny 
victims  among  tho  badly  hnuHed,  ill-dad,  and  meanly 
noiiriHhed  nuiHHes  nf  poor.  Famines  occur  from  tinio  to 
time,  with  pestilence  following,  to  carry  olV  the  retlumhmt 
population  that  other  destroying  agencies  havo  spared. 

These  |)08itivo  chocks  on  incroaso  overtake  men,  in 
common  with  tho  U>wor  animals,  wherever  thoy  multi- 
I»ly  >  'ith  brutish  disregard  of  consequencos.  It  is  thoBo 
cliecks  that,  in  the  last  resort,  keep  down  all  fornis  of 
animal  life  on  the  earth.  Wore  it  not  for  the  attacks 
of  enemies,  and  tho  lack  of  suitablo  nourishment,  there 
is  no  animal  that  could  not  long  -inco  have  Klled  with 
ltd  incroaso  every  inch  of  tho  habitable  globo.  Men 
have  two  points  of  great  suiniriority  over  tho  lower 
animals:  thoy  have  no  living  enemies  to  fear  except 
one  another,  and  they  can  <lo  much  to  improve  theii 
surroundings.  iJut  without  due  restraint  on  incrottBO, 
they  eventually  expose  thtunselves  to  limiting  forces  no 
loss  terrible  and  oHective  than  those  that  restrict  lower 
forms  of  life. 

These  doctrines,  as  to  the  ultimate  limits  of  popula- 
tion, nn;  known  as  Malthnsianism,  from   the   name  of 


l^aifu  uniUr  Diminitliinij  /Itlitrnt. 


317 


crease  of  iHtimlu 
tloea  not  uxint,  vt 
leck  nctH  throtij^h 
It  itHidf.     VVIiort' 
1  pnipur  itoiiri.Mli- 
A  (IfcntiiHiii^  pro- 
tiirity.     I)im)iiH(!)< 
l;{Uiii«M)t  niul  oitny 
lull,  and   incniily 
I'lir  from  tiiiio  to 
ott'  til*!  r(!*liiii(lant 
'H  iiiivu  Hpurud. 
)V(>rtaku  iiiun,  in 
cvor  thoy  imilti- 

ICeS.     It   18    tllOHM 

twn  nil  foriiiH  ol 
t  for  tlu^  attacks 
juriahiiient,  there 

havu  Kllud  with 
l)le   gloho.      Men 

over  the  lower 
1  to  fear  except 
;()  improve  their 
[lint  on  increas*!, 
imiting  forces  no 
lat  restrict  lower 

liinita  of  popula- 
mi   the   imino  of 


Mr.  MolthuH.  thti  oamomUt  who  flrnt  cx|Mmntled  th«'iii. 
They  have  Im-oh  fre.ju.'nlly  tuntrovtrtfd,  osp.M  ially  l>y 
perHotw  who  did  not  clearly  underHian<l  ihem;  hut  they 
Hcem  tti  re.Ht  on  very  scdid  foumlulionH.' 

4.  Sbarinf  of  tlie  Lou  from  Diminishing  R«turna.--'rhe 
divinion,  hetweeii  Inhorern  luul  emphtyerH,  of  the  Ion* 
from  dimininhinK  nturnM,  foUown  the  principled  mIuUmI  in 
ChapU'r  XV 1 1 1.  The  question  is  how  the  in<  rea«e  of 
savingH,  in  the  HeuKe  of  real  HaviuKH,  compare.H  with  the 
iiureaKe  of  laltoierH  hc  '  ing  employment.  If  NuviuKH, 
meaHured  in  the  thingH  that  laliorerH  need,  inerease  uh 
faHt  aH  the  numl»er  of  lahorerH,  the  whole  \ohh  falls  on 
proiitH.     S<i  far,  however,  an  HavingH  fall  Hhort  t»t  keeping 

I  II  Ih  lm|K)rliint  Ui  r«'i«»'in»HT  tliiit,  »i  miy  nlvtii  raU-  of  liicri'iiitf, 
lli«  ttlmoliitc  uruwili  of  iiuiiiImtk  in  a  <Miiiiilry  Imm!oiih-h  iiioH'  ihhI  niorii 
rupUl  iw  lim»'  «»•■•*  <>"••  1'.  '"«■  «'«"""1>I«'.  <■'•"  l'"'l«<l  SiiiUH,  HliirtliiK 
with  a  iK.puliUl.m  "f  nlxty  tiilllioiiH,  wi-ro  to  go  on  aoulillntt  lu  nam 
lnrH  evtry  tlil«yllin<f  ynirH,  tin-  iibnoluU)  lacn-aKu  In  i-wili  nucctiwlvu 
iK^riod  would  bu  a»  follown :  — 


rini  r-Tlml 

HiTDiiil  (mtIimI 
Tlilril  |M<rl«l 
Kiiiirtli  imrlixl 


tninw 

nn,min,(i<io 
t',ji),i)i»).iiiiii 


PuimUlInn  *t  mil  ii(  iMilod. 

'iin.iHin.ntii) 

4MI,UINt,)NI0 
INID.INIII.IIIIII 


In  tlu!  ninth  period  (t-nd  of  tliri'o  liandnd  yearn),  tin-  hunawi 
would  »)t!  ir),.'M10,(M)0,(HH),  l)rliiKlri«  the-  loiiil  jMi|inliUlon  up  to  :i<»,7'i(t,- 
iHKt.oeo.  In  this  thlitli'lli  iHTi.Ml  (end  of  ono  tliounand  yrarK),  the  In- 
cn-mo  would  Iki  :W*ir2,2r)l,720,(K)0,()(K),  brinnlnn  the  total  populuflon 
up  to  (M,42»,li01>,44(),(XK),(K)0.  It  lit  »'»«y  to  Htc  that  a  uniform  rate  of 
incrfOHo  niuxt  in  tlio  end  make  tho  nure  <iucKtion  of  MUndingrooii! 
a  matter  of  difllculty,  — to  Hay  nothing  an  to  the  nieann  of  Mnpportlni{ 
life.  ('lieckH  on  llm  rate  of  IncreaHe,  and  eventual  arruMt  of  all 
IncroatM',  would  limn  Beem  to  bt;  a  pliyhlcal  nei:e»«ily. 


JUitieal  Ktonam^, 


jMK'o  willi  tlio  iiM'nmai'  of  tnlHtnirN,  ilui  Iumn  Im  tltMwii  on 

In  oftliT  timt  Navili|{H  (tliall  iinrt'iimt  un  fiint  n«  Inliori'i'M, 
it  it  iiliviiiii<<|y  iH't'fMMiiry  iliitt.UM  tiiiii<  ^uch  on, an  Inirt'iiN 
iii^  |ii'i>|iorlion  of  all  tlwit  in  |iro<lui't<t|  itliall  Im)  HnviMl  for 
invoHinicnt,  -ami  tliiN  in  M|)iiit  of  lint  durlininK  nilurnN 
TiiU  wunld  imply  llutt  protltK  wurit  high  at  tlm  ontNtt, 
and  that  tlin  N|iirit  ttf  Huvinu  ih  tttt-ailil)'  Krowin){.  Wlifht 
tliUMu  comlilionH  am  fullllli-*l,  tlu^  Iomih  front  iliniinlNhin^ 
roturnH  may  fall  for  Ki-iuTiitionH  mainly,  or  even  wholly, 
on  ihi!  <'m|iloyin^  claNM.  Hut  of  courNn  tluTti  iH  a  limit, 
iHtyonil  which  tint  diM-lini)  of  protltn  (;<<ul<l  not  K'*  withont 
iirri'Mlinj^  incruamj  of  Hiivinj(«.  TluTu  Ih  u  nuccNsary  rat«' 
Udow  which  twun  thu  pruvioiu  voluinti  of  mivinKN  wouKl 
not  h«  nmintainwl.  Ah  thin  point  is  approdchcd.  \\w  Iohm 
from  incrfaHt'il  prcMMuru  on  natural  a^'iMiLs  nniHt  fall  moru 
and  nioro  on  thu  lahorcrN. 

It  JM  wull  to  noti)  tin!  prciMHi'  niodis  in  which  diinin-  * 
iHhin^  ntturtiH  tako  otluct  on  wn^tm.  Tho  two  principal 
itoniH  in  the  exponses  of  a  lahorcr'a  family  n.imidy,  Unw- 
mcnt  imd  tnl»l«',  nro  procimdy  thu  thinj»H  that  arn  most 
nlTcctcd  liy  incrcuHe  ttf  jiopiilation.  At  nny  givon  Hcalo 
of  niomiy-waK»'H,  ft  rise  in  houso-ri'iits  uiid  in  tho  pricu  of 
fo(»d  lonvos  a  sniftlK'r  amount  for  Hpcnding  in  other  ways. 
Unl«88,  therefore,  other  things  are  greatly  cheapened,  or 
nionoy-wngoH  rise,  it  hocomes  inipossihlo  for  ft  laborer 
to  mnintftin  ft  family  in  tho  former  degree  of  comfort. 
Wluire  this  oc(!nr.s,  tht)  decline  of  real  wages  may  call 
into  greater  uetiviLy  thu  prudential  check  ou  iucruaau  of 


ni4  /^ttftHHintf/  ImA  to  Way**, 


:itO 


l)MN  iH  tlimwii  I 


Ml 


K  fimi  ••«  liil»or«'r>t, 
M'H  nil,  III!  imri'iiM 
hull  1)0  Niivfti  fill 
lt<('liiiiii){  ri'titi'iiN 
{h  at  till)  oiitNft, 
jjrnwing,  VVIicrtt 
rrniii  iliiniiiiNliin^ 
',  or  I'vi'ii  whiilly, 
t  tliiTii  JH  II  limit, 
III  nut  K<)  witliiiiit 
I  u  iii'iu-NNiiry  rat«' 
(if  NnviiiKN  wiiiilil 

|I|'|I||I'Ihm1,  till!   lllNH 

iH  iniiHt  fall  iiiun! 

in  whinli  lUiiiiii- 
'ho  two  iiriiiciiial 
ily  ii.inioly,  teno- 
f{H  that  aro  most 
,  any  fjivon  HcnUi 
ml  ill  tlu!  jirico  of 
iig  ill  otlu^r  wayH. 
itly  choaiiciiod,  or 
hlo  for  a  laluiror 
ayreo  of  comfort. 
I  waj,'('8  may  call 
ck  ou  iuuruuHu  of 


iiiimlK>ni.  If  it  iloM,  th«  rAtio  of  iiioiiKymiviiiuK  t<>  tha 
iiuiiilH*r  of  lalHirtifH  will  tfraihially  i-haiit{it  in  favor  of 
ihit  laliororN,  ami  n'at  wiig)'<t  will  ri«o  ii^.-iin.  If  it  iIih>n 
not,  tint  nmiill  will  lict  a  |M'rmaiuMit  ami  |irtii<ri'««iv«  low* 
(•rin){  of  tho  coinlitioi)  of  lahorurH  nml  llii*ir  familit'n.' 

Tlio  wholt*  niattir  tli'|H<niln,  thfii,  on  tho  workin({  of 
tilt'  iiriiK'ipli'N  that  t^ovitrn  Navinyn  on  tho  omi  hand,  ami 
growth  of  |io|iiilatioii  on  t.hu  olhi>r.  Kvory  cirtnm'^lamii 
that  favorn  iiicrfam'  of  navin^M,  or  ri'iiri'MMion  of  ilii>  niim- 
Imith  m!<!kiii({  i!m|iloyiiuiiit,  li'iult  to  |iri'ii'rvt'  lliu  iniiiiH  of 
mankiml  from  Iohh  of  uarniiigM  by  ruaauti  uf  iliniiaiNhing 
rntiirii'i  from  natural  a(^t«nt«. 

5.  R«*altt  Modified  by  ui«  of  Rente  in  Paying  Wagei.  — 

Oil   thu  Hiitu   of  Haviii^H   thi>ro    in   onu   fiirtlatr  c.-iii:um> 

Htannu  to  Ihi  t'oiiHiiluriMl.      Tlioio  Ih  oho  kimt  of  iuioiiui 

that  iiicntamm  an  the  proportional  ri-lurn  for  lalior  iliniin'- 

i.iht'H.    Tho  riNO  of  ci-onomic  rout  iiiakos  tho  hidiaviorof 

tiu)  ront-r(H'(!iviii){  clafiH  an  olomont  of  conNi<l»ralil'    nu<l 

i-vor-yrowinn   iinportaiico,  in  det«ri::iniiiK  tho   courso  of 

wttgim.     Though  rent  must  1)0  dt'diiftml  from  tho  product 

of  industry  when  tho  quoHtion  is  to  find  tho  protitH  on 

puHt  "Utlay,  it  rcmaiuH  a  part  of  thc!  product  of  iiidiistry 

when  tho  nucHtion   is  of   present  resources    for  paying 

wago»i.     Income  from  rout  may  ho  saved  and  used  in 

>  PoMlble  rtRe  in  tho  cunt  ot  kdIiI  In  intcntinimlly  omiltiil.  It 
woulil  (loubtli'M  Ih!  inori!  nccuruti',  iliouuli  Ii'mh  rli-iir,  ti>  Mtnti-  tln'  priii- 
oipla  Hum:  WIii'ii,  tiikiui  om  a  wluili',  tin-  tliiiiKN  coiiNtitutliijt  nul 
waffCH  becoinii  iiuiro  coHtly,  rual  wiik^'m  numt  ilii'liiif,  uiiIcmm  an  in- 
cri>a»i!(l  iir(i|Mirtion  u(  tlio  curruncy,  la  llM  ciruuit,  bu  turneil  into 
raoncy-wugcH.    Sec  p.  200,  lop. 


4 


320 


Political  Ecoiwmy. 


hiring  laborers  as  readily  as  income  of  any  other  kind. 
Just  as  in  the  case  of  profits,  what  is  lost  to  the  laborers 
through  rent,  is  not  the  amount  the  landlords  receive, 
but  the  amount  they  consume. 

Hero,  then,  is  a  source  from  which  increase  of  savings 
may  bo  looked  for  as  population  increases.     It  is  prob- 
able that  rent-receivers  spend  more  freely  on  themselves 
than  other  classes ;  but  they  are  not  exempt  from  the 
common  eagerness  for  increase  of  wealth.     Even  in  coun- 
tries where  they  form  a  separate  class,  mostly  abstaining 
from  active  business,  their  savings  hav!)  a  great  influence 
Id  sustaining  the  rate  of  wages  in  the  face  of  diminished 
returns.     Further,  as  a  class,  la!>dlords  usually  employ 
many  servants  and  jiersonal  attendants,  —  so  that  a  part 
even  of  their  siiendiiigs  are  in  aid  of  wages.     It  would 
therefore  be  a  great  mistake  to  suppose  that  whatever 
accrues  as  rent,  out  of  the  current  i)roduct  of  industry, 
is  thereby  withdrawn  from  the  support  of  laborers.     It 
may  bo  paid   to  theu.  for  their  help  in  the  production 
of  commodities  that  are  still  in  the  future,  or  for  any  of 
those  non-productive  services  that  rent-receivers  so  com- 
monly demand. 

This,  however,  does  not  invalidate  the  principle  stated 
in  §  1.  It  does  not  alter  the  law  of  diminishing  returns. 
It  merely  tempers,  at  any  given  time,  the  action  of  the 
law  in  the  case  of  wages.  It  means  simply  that,  as 
population  increases,  the  source  of  wages  does  not  con- 
tract, relatively  to  the  number  of  laborers,  as  rapidly  as 
the  returns  for  additional  labor  fall  off.    Where  ecouoniio 


^i,j,a*«!4".ttW*':**"^'i'- ! 


f  any  other  kind. 
)st  to  the  laborers 
laudlords  receive, 

ncreaso  of  savings 
uises.  It  is  prob- 
icly  on  themselves 
exempt  front  the 
,h.  Even  in  coun- 
mostly  abstaining 
!)  a  great  influence 
face  of  diminished 
Is  usually  employ 
,8,  —  so  that  a  part 
wages.  It  would 
ose  that  whatever 
■oduct  of  industry, 
•rt  of  laborers.  It 
in  the  production 
iture,  or  for  any  of 
t-receivers  so  com- 

iho  principle  stated 
iminishing  returns. 
,  the  action  of  the 
ns  simply  that,  as 
ages  does  not  con- 
lorers,  as  rapidly  as 
'.    Where  eQouowiQ 


lienta  may  hecome   Wnycs. 


321 


rent  exists,  the  industrial  product  from  which  wages  may 
be  drawn,  exceeds,  l)y  the  amount  of  the  rent,  the  product 
on  which  employers  must  rely  for  their  profits. 

The  situation  is,  therefore,  more  favorable  for  the 
laborers  than  it  would  be  if  all  the  natural  agents  were 
as  poor  as  the  poorest  in  use.  But  it  is  correspondingly 
less  favorable  for  the  employers.  So  far  as  rents  are 
turned  into  wages,  thus  keeping  wages  up  in  spite  of 
diminishing  returns,  the  result  is  to  throw  the  brunt 
of  the  loss  on  profits.  The  consequent  decline  of  profits 
must  eventually  check  the  aggregate  How  of  savings 
from  all  sources.  The  conversion  of  rent  into  wages 
cannot,  therefore,  in  the  long  run,  protect  the  laborers 
from  the  consequences  of  undue  increase.  It  may  post- 
pone, but  it  cannot  prevent,  the  ultimate  fall  of  wages. 
Its  eventual  effect  may  only  be  to  afford  the  reduced 
scale  of  wages  to  a  larger  population  than  could  find 
employment,  even  at  that  rate,  if  the  owners  of  the 
better  natural  agents  consumed  the  whole  rent  them- 
3elve8  iu  the  form  of  luxurious  commodities. 

QUESTIONS  AND  EXERCISES. 

1.  What  cirouuistances  determiiie  the  normal  level  of  wages  in 
a  community  ? 

2.  Why  are  wages  higher  in  some  countries  than  in  others  ? 

3.  Show  that  real  wages  depend  on  the  relative  heigfit  of  money- 
wages  and  prices  (including  house-rents). 

4.  If,  for  the  coming  year,  all  iwrsons  who  have  money  to  spare 
should  spend  it  in  buying  goods  for  their  own  use,  what  would 
the  effect  be  ou  wages? 


:l 


322 


PblUical  Economy. 


5.  Wl.at  are  the  gromidB  for  holding  that  the  general  level  ol 
wages  cannot  be  raisoil  by  strikc^H  ? 

(1  Mention  circinnstances  that  would  be  likely  to  depreHH  mar- 
ket wages  iKdow  the  norn.al  level,  and  describe  the  process  of 
recovery  in  such  a  caHe. 

7.  in  what  sense  do  the  wages  of  the  present  time  .leiKind  on 

past  savings? 

8.  How  do  labor-saving  inventions  affect  wages  ? 

0.  Why  is  it  difficult  to  ascertain  the  precise  rate  of  profits  at 

any  time? 

10.  What  do  the  aggregate  profits  of  the  whole  body  of  em- 
ployers dei>end  on? 

11.  Show  that  aggregate  profitfi  may  rise  without  a  fall  of  real 
wages,  and  that  real  wages  may  rise  without  a  fall  of  profits. 

12.  Name  the  three  principal  factors  on  which  the  profits  of 
the  individual  employer  depend.  Show  how  a  change  in  any  one 
of  these  affects  his  profits. 

13.  How  do  yo\i  account  for  the  notable  differences  in  the 
profits  of  individual  employers? 

14.  Distinguish  between  economic  rent  and  rent  in  the  [wpular 
sense.    Is  the  rent  of  a  city  house  economic? 

15.  How  d(-  railroads  affect  rents? 

16.  Explain  carefully  the  connection  between  rent  of  land  and 

the  price  of  food? 

17.  What  is  meant  by  the  law  of  diminishing  returns? 

18.  What  is  the  error  in  assuming  that  wages  may  be  discov- 
ered at  any  time  by  deducting  profits  and  rent  from  the  product 
of  industry?    What  would  the  remainder  be? 

19.  On  what  does  the  normal  rate  of  interest  depend?  Is  it 
affected  by  changes  in  the  supply  of  money?  Mention  circum- 
stances that  cause  the  market  rate  of  interest  to  be  high. 

20.  What  does  the  price  of  laud  depend  on?  Why  is  it  more 
variable  than  other  prices? 


—  .WsaaaBiWiMMlX'l "'IW    |ilVillllWIHI».il1'.?*a»-a!«5--^*>i»r-'' 


t  Iho  general  level  of 

likely  to  (lepreHH  mar- 
jciibo  the  procoHS  of 

I'seiit  time  tle{>ciul  on 

wages  ? 

jciwi  rate  of  profits  at 

le  whole  body  of  ein- 

I  witliont  a  fall  of  real 
it  a  fall  of  profits. 
1  which  the  profits  of 
iw  a  change  in  any  one 

bio  differences  in  the 

md  rent  in  the  i>opular 
J? 

bween  rent  of  land  and 

lishing  returns? 

t  wages  may  be  discov- 

rent  fron»  the  product 

be? 
interest  depend?    Is  it 
ney?    Mention  circuni- 
^rest  to  be  high. 
id  on  ?    Why  is  it  more 


CIIAPTEU    XXV. 

EXCHANOB    OP    PRODUCTS    BETWEEN    SEPARATE    COM- 
MUNITIES,  OR   INTERNATIONAL   TRADE. 

We  must  now  enter  upon  a  subject  involving  very 
considorablo  difficulties  in  itself,  and  made  douMy  difti- 
cult  by  the  apparently  endless  controversies  that  are 
connected  with  it.  It  is  needless  to  associate  this  little 
b()(tk  with  one  side  or  the  other  in  the  issue  between 
Free  Trade  and  Protection.  liut  the  exchange  of  prod- 
ucts between  whole  communities  of  men  is  too  inti^rest- 
iug  and  important  to  be  passed  over  without  discussion 
in  any  general  study  of  economics.  I  propose,  therefore, 
to  set  down  in  this  chapter  certain  general  truths  and 
elementary  facts  in  connection  with  foreign  trade,  as  to 
which  I  supi)ose  all  intelligent  men  would  agree  in  sub- 
stance, however  nmch  they  might  differ  in  their  ways 
of  interpreting  them.  In  the  next  chapter  I  shall  try  to 
.state,  as  briefly  and  impartially  as  I  can,  the  two  oppos- 
ing views  as  .,0  the  benefits,  or  the  injurious  effects,  of 
unrestricted  foreign  trade. 

1.  International  Trade  an  Exchanging  of  Products. — 
The  first  thing  to  note  is,  that  trade  between  communi- 
ties, like  all  other  trade,  is  always  at  bottom  an  exchang- 
ing of  products.     The  exchange  is  disguised,  but  less  so 

323 


324 


Iblitical  Economy. 


than  in  the  case  of  exchftuyes  within  encli  community. 
It  is  not  involved  with  the  payment  of  wnges.  Hut 
money  is  employed  with  the  same  complicating  effect. 
The  importation  of  goods  is  carried  on  by  a  different 
set  of  men  from  tlioso  who  carry  on  the  exportation  of 
goods  Again,  the  goods  exported  are  not  always  sent 
to  the  place  from  which  the  imports  come.  Yet  it  is 
easy  to  demonstrate  that  every  country  pays  for  its  im- 
ports by  means  of  exports ;  and  this  not  in  any  loose 
or  half  figurative  sense,  but  in  strict  and  literal  fact. 

In  the  trade  between  communities  a  special  form  of 
paper  currency  is  used,  which  has  not  yet  been  spoken 
of,  — namely.  Bills  of  Exchange  or  Drafts.    The  nature 
and  use  of  bills  of  exchange  may  best  be  seen  from  an 
example.     Suppose  A.  B.  of  New  York  sends  a  cargo 
of  wheat  to  CD.  in  Liverpool,  he  does  not  ordinarily 
wait  for  C.  D.  to  send  him  money  in  return.    Instead  of 
this  he  draws  a  bill  on  C.  D.  for  the  amount,  and  sells 
it  to  an  exchange  broker,^  getting  in  this  way  the  means 
»  Exchange  brokers  are  a  class  of  bankers  who  buy  and  sell  bills  of 
exchange.    In  this  country  the  ordinary  banks  act  as  exchange  brok- 
ers.   Bills  of  exchange  vary  in  form.    They  differ  from  checks  In  two 
important  particulars:  they  may  be  drawn  on  any  person  who  owes 
money  to  another;  and  the  time  for  making  the  payment  (that  is  U> 
say,  whether  "  at  sight"  or  in  a  certain  number  of  days  '  after  sight") 
is  always  mentioned  in  the  bill.    The  following  spcchnen  will  serve  to 
show  how  A.  B.  draws  on  C.  D.  in  favor  oi  Smith,  Jones  &  Co.,  the 
purchasing  brokers: 
E^hange  for  £1000.  New  Vobk.  January  2  1889. 

SUty  days  after  sight  pay  to  the  order  of  Smith,  JoncH  &  Co.  one  U.on«w..l 
pounds  sterling,  for  value  recoivod,  and  charge  the  san.  *  "* 

To  C.  D.,  Liverpool,  England. 


to  account  of 


■,jjjjii;jiiLB,J»«-vgj]WiiiW.unM.tfW 


Bassafea^Ts'i'V- 


Exports  Pay  for  Importn. 


325 


.  each  community. 
,t  of  wages.  Hut 
omiilicating   cfTec't. 

on  by  a  different 
tho  exportation  of 
■e  not  always  sent 
s  come.  Yet  it  i.s 
ry  pays  for  its  im- 
s  not  in  any  loose 

and  literal  fact. 

I  a  special  form  of 

3t  yet  been  spoken 

Jrafts.    The  nature 

st  be  seen  from  an 

fork  sends  a  cargo 

does  not  ordinarily 

return.    Instead  of 

3  amount,  and  sells 

this  way  the  means 

who  buy  and  sell  bills  of 
ks  act  as  exchange  brok- 
lifler  from  checks  In  two 
in  any  person  who  owes 

the  payment  (that  is  to 
er  of  days  'after  Bight") 
ng  spechnen  will  serve  to 

Smith,  Jones  &  Co.,  the 

fEW  York,  January  2, 1889. 
h,  JonfK  &  Co.  one  thonaanil 
I  saiiK  to  account  of 

A.S. 


..VS;.l^i!iU 


to  buy  a  fro.sli  cargo.  Tlio  broker  forwards  tlio  bill  to 
his  London  "correspondent,"  who  attends  to  the  collec- 
lioM  and  places  the  amount  to  the  bntker's  credit. 

Similarly,  when  K.  F.  of  New  York  imports  a  cargo  of 
sLetd  rails  from  (}.  }I.  in  Hi/mingbum,  lie  doe.4  not  for- 
ward cash  in  return,  but  goes  to  the  broker  for  a  bill. 
Ti»e  broker  sells  him  a  bill  on  his  London  "  correspond- 
ent." This  is  sent  to  G.  IL,  who  readily  ol)taiii8  tho 
mr)ney  for  his  steel  rails  by  me<  ns  of  it. 

Thus  the  bill-brokers  manage  the  colK-ctions  for  goods 
exported  and  make  tho  payments  for  goods  imported. 
They  are  able  to  do  this  very  cheaply,  because  they  can 
ordinarily  use  the  proceeds  of  the  bills  they  buy  from 
exporters,  to  meet  the  bills  they  sell  to  importers.  For 
example,  in  the  case  given  above,  the  money  collected 
from  C.  D.  is  simply  turned  over  to  G.  H.  In  this  way 
the  wheat  sent  out  by  A.  B.  is  made  to  pay  for  the  steel 
rails  imported  by  E.  F.  The  bill-brokers  cojitrive  very 
easily  to  balance  off  all  our  obligations  to  the  various 
countries  of  Europe  against  their  indebtedness  to  us. 
In  this  way  hundreds  of  millions'  worth  of  goods  may  be 
paid  for  without  the  actual  sending  of  a  single  dollar. 
There  could  be  no  clearer  proof  needed  to  show  that 
international  trade  is  strictly  an  exchange  of  products. 

2.  The  Rate  of  Exchange.  —  The  exchange-brokers 
make  their  profit  by  charging  a  little  more  for  the  bills 
they  sell  than  they  p.ay  for  the  bills  they  buy.  Both 
their  buying  price  and  their  selling  price  may  rise  or 
fall  together.    Exchange  on  foreign  countries  may  be  at 


■■  -^j— <wg-y*a^wnw 


HMIMLgHiiJtiLni'  - 


326 


Politicnl  Economy. 


a  i)roiuium  or  at  a  iliscount,  dopomling  on  tho  rolativ« 
deiuaml  and  m\\Ay  of  bills. . 

When  eximrtH  of  niurchandiflo  oxcihmI  iinporta,  the 
billH  brou-^ht  to  tho  broktirs  by  tho  exporters  exceed  in 
amount  those  called  for  by  the  importers,-  the  supply 
exceeds  the  demand.  In  this  situation  the  jirice  falls. 
In  tho  reverse!  i;ase,  — that  is,  when  imports  exceed  ox- 
ports,— importers  (leman<l  more  bills  of  the  brokers  than 
exporters  are  bringing  to  thoiu  for  sale,  and  tho  price 
of  bills  rises. 

Whatever  the  relative  demand  and  supply  of  commer- 
cial  bills,  the  brokers  stand  ready  to  buy  all  that  are 
offered  to  them,  and  to  sell  as  many  as  are  called   for. 
But  when  they  sell  faster  than  they  buy,  they  do  .so  at 
tho  risk  of  having  to  boar  tho  expense  of  sending  over 
gold  to  cover  tho  balance;  for,  just  as  in  tho  case  of  a 
private  person  drawing  on  a  l»ank,  tliiiy  mtist  not  over- 
draw their  account  with   the   foreign   banker  on  whom 
they  sell  bills.     In  the  reverse  (la.se,  they  buy  bills  with 
the'  certain    prospect  of   having    to   bring  the   procee.ls 
homo.     They  cannot  go  on  indefinitely  paying  out  money 
at  homo  for  tho  right  to  colhict  money  abroad,  without 
some  way  of  replenishing   their   home    supply.     I'.ut  if 
customers  are  lacking  for  the  money  they  have  to  tiieir 
credit   abroad,  they  can  at  least  bring  it  home    for  use 
in  buying  more  bill.s.    The  cost  of  thus  s(.nding  money  in 
tho  one  case,  and  of  bringing  it  in  the  other,  gives  the 
limit  of  tho  rise  and  fall  of  the  price  ui  exchange. 
In  the  case  of  bills  on  England,  par  of  exchange  is 


ig  on  the  rolativtj 

ciH!(l  imports,  the 
xiMirtors  oxcocd  in 
rterH,-  t,lio  supply 
(III  tlu!  prici)  fulls, 
imports  oxcciid  ex- 
it the  brokers  tlmii 
iiile,  and  tlio  price 

supjily  of  comnier- 
()  l)uy  all  that  are 
Y  as  are  called   for. 
buy,  they  do  so  at 
ISO  of  sending  over 
[vs  in  the  case  of  a 
liey  nmst  not  ovcr- 
1  liiuiker  on  wliom 
Ihey  buy  bills  with 
bring  the   proceeds 
y  paying  out  money 
mey  abroad,  without 
ne   sujiply.     r»ut  if 
f  they  have  to  tiieir 
u"  it  home    for  use 
us  s(MuUng  money  in 
the  other,  gives  the 
ice  of  exchange, 
par  of  exchange  is 


MorcinentH  0/  Money  bdweoi  t'ountHea.         327 

S'4.M6i  =  XI.  Now  brokers  can  profitably  semi  gold  to 
Kiiglaiid  and  sell  bills  iigaiiist  it  al  the  rate  of  iib<iut 
?<4.8!)i  for  the  jiound.  Tliis  is  therefore  the  upper  limit 
of  the  premium  they  can  charge  for  "sight"  bills.  Kx- 
<'hange  is  then  said  to  be  at  the  "shipping  point."  In 
this  situation,  the  exiMjrter  is  able  to  get  a  premium 
(about  ^-t.HH  for  XI)  when  he  sells  his  bill  to  the  brokers. 
(Of  course  bills  that  are  not  payable  at  sight  are  always 
lower  than  "sight"  bills.) 

There  is  a  corresponding  lower  limit  of  the  rate  for 
"sight"  bills,  which  depends  on  the  cost  of  bringing  over 
actual  money.  Hrokers  can  make  a  fair  profit  by  buying 
bills  at  ^4.83  for  XI,  even  if  the  only  use  they  can  find 
for  the  proceeds  is  to  have  the  money  brought  to  Amer- 
ica. This,  therefore,  is  the  gold-importing  point,  or  lower 
limit  of  the  rate  of  exchange  on  England. 

It  is  to  be  remembered  that  gold  passes  from  country 
to  country  simply  by  weight,  even  although  it  be  in 
the  form  of  coins.  When  we  say  that  §4.86  §  etpials  the 
English  pound,  the  meaning  is  that  this  is  the  relative 
weight  of  pure  g(dd  in  the  dollar  and  the  sovereign.  In- 
cidentally, it  is  worth  noting  that  bankers  do  not  always 
send  to  the  Hiint  the  foreign  coins  they  import.  It  may 
be  an  advantage  presently  to  have  gold  in  the  form 
of  foreign  coin  for  sending  back,  when  the  balance  of 
exchange  turns  the  other  way. 

To  be  accurate,  the  balance  of  imports  and  exports  is 
only  the  chief  and  usual  occasion  for  the  movement  of 
money  between  countries.     Every  other  business  relation 


f: 


328 


Ihlitivat  JieonoMjf, 


of  moh  rmxuiry  to  t)thor  countru)«  must  como  into  the 
nccouut  a\n\  liulp  to  (Uiterinino  tho  riito  of  exchange. 
I«'iir  oxnmiilo,  if  Um'.'\\j;\\  ciipiUiliHlH  invest  in  our  railromls 
or  liiiy  unr  {rovorninoiit  hoiulH.  wo  nmy  have  a  hahun-e  (tf 
iniportH  over  cxjMtrts  i'i[W\\  to  tins  sum  they  invest,  with- 
out niusiiiii  j?oltl  to  ho  sent  abroad.  On  the  other  liand, 
if  we  liave  to  pay  ion  millions  ann»ially  as  interest 
to  foreign  lioMers  of  our  bonds,  and  ten  millions  more 
for  tho  oxi^nses  of  Americans  travelling  in  Euntpe,  our 
exports  may  exceed  our  imports  by  twenty  millions 
without  causing  gold  to  como  to  us. 

3.  How  Export*  and  Impon'a  are  kept  roughly  equal.  — 
A  country  cannot  go  "u  permanoi\tly  getting  from  other 
countries  more  than  she  gives  them  in  return.  When 
her  debts  to  foreign  nations  exceed  her  claims  against 
them,  gold  has  to  be  sent  to  settle  the  balance.  The 
effect  of  a  continued  export  of  gold  is  to  Icsscin  gradually 
her  home-supply  of  money,  and  thus  cause  a  decline  in 
tho  prices  of  her  products.  Not  only  so,  hut  the  increased 
supply  of  money  in  tho  countries  to  which  the  gold  is 
sent  causes  a  rise  in  the  prices  of  the  things  she  buys 
of  those  countries.  This  double  change  of  prices  tends  in 
two  ways  to  bring  abcat  an  equality  of  exports  and  im- 
ports, and  thus  put  an  end  to  tho  outflow  of  gold.  First, 
it  becomes  easier  than  it  was  before  to  make  a  profit  by 
sending  things  abroad  to  be  sold.  Secondly,  it  becomes 
harder  than  it  was  before  to  find  a  profitable  sale  for  im- 
ports. In  this  way  exports  are  stimulated  and  imports 
are  checked,  until  equilibrium  is  reached. 


Ji'ijHtrU  find  Imjtorls  tend  h  A'l^uiiltlif. 


320 


ist  cuiuo  intu  the 
mto  c)f  uxcliaiiKu. 
Ml  ill  our  railromls 
liiivo  a  litiltiiK'o  f)f 
tlioy  iiivust,  with- 
in tho  other  liaiid, 
iiuiiUy  88  interest 
ten  iiiillions  more 
iig  in  Eiirope,  our 
f  twt.'iity  millions 

t  roughly  equal.  — 

(jottiii!^'  from  other 
in  return.  When 
lior  claims  ngainst 
the  balance.  The 
to  IcHscin  gradually 
cause  a  decline  in 
r),  but  the  increased 
which  the  gold  is 
10  things  she  buys 
0  of  prices  tends  in 
of  exports  and  im- 
low  of  gold.  First, 
to  make  a  profit  by 
Bcondly,  it  becomes 
)fitable  sale  for  im- 
ulated  and  imports 
2hed. 


It  JH  thiiH  iimdo  (Mtrtain  that  a  dmiii  of  money  from 
uiiu  country  to  another  ciiiinot  go  on  iMiitiianently ;  that 
II  country  iiiiiNt  in  the  long  run  give  <'oiaiiioditie.s  for 
I'oiiiiiKxlitieH.  A  case  may  ni.sily  be  iiinigiiifd  in  which 
mm  country  Hhoiild  have  all  her  prieeH  aliovt*  those  of 
iiiiother,  to  such  an  u.Ktunt  that  a  oiie-Hid(>d  trade  Hliould 
set  in  lM)twe<fn  them,  —  the  country  «)f  high  prieeN  ntuid- 
iiig  the  othiir  nolhing  but  money  in  ntturii  for  imports. 
Hut  such  a  trade  could  not  la.st.  The  traii.sfer  of  money 
would  soon  cuiiHe  a  fall  of  pri(;eH  in  the  one,  and  a  rise  of 
prices  in  the  other,  until  the  diHeioiwie  became  too  Hiight 
to  alFord  a  profit  for  the  movement  of  g(»od8.  Then  the 
trade  would  cease,  — that  is,  if  the  change  of  prices  faiknl 
t<)  open  a  chance  for  sending  goods,  with  a  profit,  where 
cash  was  sent  previously.  The  thing  certain  to  hapiMjii 
is  the  cessation  of  the  outflow  of  money. 

A  country  cannot  long  have  imports  without  export- 
ing an  eipiivalent.  So  neither  can  it  have  exports  with- 
out importing  an  equivalent.  The  money  oi  the  world 
could  not  always  move  towards  one  country  without  in 
the  end  stripping  other  countries  of  their  necessary 
share. 

ThT  principles  liere  stated  must  Iw  slightly  modified 
for  the  ca.so  of  the  gold-producing  countries.  Most  of 
the  world's  supply  of  gold  is  produced  in  two  or  three 
countries.  The  new  gold  must  find  its  way  out  of  these 
and  distribute  itself  over  the  commercial  world.  It  can 
do  so  only  through  the  ordinary  process,  by  going  out  in 
payment  of  balances  accruing  againct  these  countries  oa 


t 


J 


880 


IhlUical  Mcomniy, 


their  gi'uorul  tnulo  with  tho  rest  of  tho  worU     Though 
guhl  i»,  f«»r   th  (  BuUl-i>r<Mlu.iiij/   cujiutrieo,  A  cointntMlity 
aiul  tt  i.art  of  its  prodiu-t  of  iu.Uisliy,  }«t  it  ih  «»  nrli.l.' 
whi.h  cuim-t  huvi-  u  lower  i.ric«3  in  oimj  country  than  in 
(iii..thiT.  f..r  j^i.l'l  huH  no  prico.     Thu  t<x<:e««  of  «ol<l  m  th.' 
couiiiri.-H  i.r...l..uing  it  l<.iejw  thoir  Hcncral  luvul  <.f  priwH 
.i»)o\o  tho  lovol  j.ifVftilinH  w  other  couutriuH;  with  i\^^ 
result  that  their  iini»ortation  of  ordinary  conunoditieH  in 
HUadily  gmiter  than  their  oxportntiou.     This  causes  the 
.hiniaiul  for  bills  on  other  countrieH  to  ho  gvoator  than 
tho  HUi'i'ly ;  oxchungo  is  onliuiifily  nt  or  near  the  ehip- 
l-iiiK  l'<'i»t.     The  hrokcrs  have  to  sei'd  gold,  frosu  tiiuu 
to  time,  to  cover  tho  hillH  thoy  Boll  i'»  oxecfs  of  those 
they  buy.     In  this  way  the  gold  uiakeb  »t»  -.vay  to  other 

couutricB. 

4.  Prlcei  of  the  Ooodi  Exchanifod  mnit  Differ  in  the 
Trading  Couatries.  ~-  It  may  be  ta:<en  for  grunted  that 
no  nmn  would  ordinarily  send  an  article  to  another  coun- 
try to  be  Hold,  unlesH  he  expecUid  to  get  a  higher  price 
for  it  than  he  could  get  at  home :  onougi.  higher  to  pay 
tho  freight,  insurance,  and  other  coats,  together  with  some 
balance  over  by  way  of  jirolit  on  the  transaction  C'er 
tainly  no  nmn  would  nuike  a  business  of  bu  /ing  products 
ill  one  country  and  selling  them  in  another,  unless  the 
dillerenco  of  prico  in  the  two  countries  was  sufacicnt  to 
give  him  ordinary  profits  on  tho  business. 

Also,  we  may  assumo  that  tho  difference  in  price  in 
the  two  countries  cannot  ordinarily  be  more  than  enough 
to  cover  all  costs  and  charges,  and  leave  ordinary  profits 


ti^'i^iiH^'^i,. 


Jlaait  (]/  Trtidt  htiween  CouiUrut. 


aai 


,ho  w.trlil     Though 
itries,  A  coiniiuMlity 

yet  it  i«  ttii  nrtirlt; 
)iuj  country  thuii  in 
XCU88  of  yold  ',n  lilt' 
wra\  luvul  of  jjritfs 
countriuK:  with  th;! 
iiury  couunoditii'H  in 
u.     This  causes  thn 

to  t)o  greater  than 

t  or  near  the  ship- 

iii'.l  goUl,  ttoia  tiiiJO 

i'l  oxccfs  of  those 

kub  it»  -.vay  to  other 

mtiit  Differ  in  the 

ill  for  grunted  that 
iclo  to  another  couu- 
i>  got  a  higher  price 
lougi.  higher  to  pay 
*,  togothei  with  some 
le  transaction  (>cr- 
s  of  hu  /ing  products 
another,  unless  the 
ries  was  8uta;;ieut  to 
isiness. 

liffereucc  in  price  in 
ho  more  than  enough 
leave  ordinary  profits 


f«)r  thoao  who  carry  on  the  busiiiua.*:.  Thu  coni|)(>titi>in 
of  other  capilalintH  may  Imi  relifd  on  to  keep  the  proliUi  of 
ihiM  class  of  traders  uit  ii  tuvul  with  ihosu  matle  in  other 
liu.iineNN 

The  smaller  thu  value  of  ai;  article,  in  projiortion  to  iui 
weight  tti'.d  bulk,  the  g'n.iter  must  Ihj  the  dillerence  in 
us  prl'!0  in  tho  two  eountrinr.  in  order  ti»  make  a  trade 
III  it  prolitahlu:  for  Miu  cost  of  traiiHimiting  such  articles 
is  great  in  proj>orUoii  to  their  value  Thus,  the  price  of 
coal  in  MaH.sachuselts  must  ditler  more  from  the  price 
of  coal  in  I'eniisylvuiiia  lliaii  the  price  of  nIioch  dillers 
ill  tho  two  .States  The  price  of  luiiilier  in  the  I'iiiled 
•States  and  in  Franco  must  dilTor  more  wiiK ly  thin  (apart 
from  Customs'  duties)  tho  price  of  silk  dilleis  in  the  two 
countries 

fi.  Trade  between  Oommunitiea  Due  to  Difference  in 
Relative  Coit  -  From  tlie  fact  tlinl.  the  [inccs  ut  the 
articles  exchanged  dill'er  in  this  way  in  the  trading  conn 
trios,  we  can  infer  a  {irinciple  of  fuiidi'.meiital  importiinci! 
in  ndation  to  t"ade  Itetwoen  stjparate  coinniunitit's  This 
principle  is,  that  no  exchange  of  commodities  can  exist 
Itetwcen  two  countries  except  there  ho  a  dilTerence  in 
the  comparative  cost  to  employers  of  producing  the  com- 
iiiodities  in  the  two  countries.  If  we  construct  a  scale 
of  prices  for  each  country,  and  comitare  tiie  one  scale 
with  the  other,  the  point  will  at  once  stand  forth  clearly, 
Suppose  wheat  to  he  ordinarily  exported  from  this  coun- 
try to  Hweden,  and  iron  to  be  reguhirly  imported  from 
.Sweden.     Suppose  farther,  that  tho  American  price  of 


^■i^tw^^a.'* 


*. 


833 


MiiinU  JKMMMNy. 


wttMi  ii  iiiiiitty  i'unti  a  ))ti«h«»!,  antl  timt  flfteen  cea^ 
luMitionul  iiiuMt  \m  ultUiiHul  in  Mwoiluii  III  r>rii(tr  Ut  giv«« 
lliti  ux|K)rt4tr  n  |iri*llt  ov**r  ux|niiinuii.  AUo,  tliitt  the  \>tkv 
of  II  liuiiiln'«lwoi>»lit  of  iron  lit  SwimImii  i-*  *I.OO.  iiml  timt 
till'  iiii|MirUir  iiiiiMi  Imvii  tw«'iity  rmitM  Hilditioiuil  for 
liriiiyiim  it  to  tin-  I  iiUimI  MliiloN,  I'littin^  tli«««t  fmtM 
ill  till)  furiii  t>f  u  (tiuyruiii,  wu  rundily  h«iu  that  the  rutio 


iriillml  NtelM. 

«i4i) 

Mil 

1.1)6 

1.0O 

.06 


•^ 


,.a 


91 'iU 

1.16 

1.10 

,.  1.06 

•  1,00 

M 

.00 


of  thf  price  of  whoat  to  tho  pricft  of  Iron  i«  (MfToront  hi 
tliu  '-WO  couiitriuM.  In  tho  IfiiitiMl  HtntoH  it  in  90:120; 
in  Swotleii  it  i«  105  :  100,  (or  90 :  80).  Thin  telln  u» 
iimniNtakahly  that  the  comparativu  cost  to  oinpIoynrH 
of  prodiKting  wiiuiit  and  iron  in  tho  United  Htntofl  in 
dinortsnt  from  tho  coinpnriitivu  cost  of  ))roducing  them 
in  Sweden.  For  if  it  wore  not,  thin  ditt'eronco  in  the 
rftti«m  of  tho  pricon  could  not  lo«t:  Americon  employers 
would  prcKluco  iron  in  i>reforence  to  wheat;  Swedish 
employers  would  find  wheat-raising  more  profitable  than 
tho  production  of  iron  So  the  ratio  of  prices  would  be 
chn.iged  and  tho  trade  would  cease. 

It  is  thus  easily  demonstrable  that  where  a  regular 
trade  exists  between  two  countries  there  must  be,  for 


')iajiMj|ii,-4)tijPHW'i«w«»-i.p. '»■.••■ 


thitt  HfUwn  (onta 
till  III  onittr  t<i  givtt 
AIno,  tliiit  the  print 
I  is  91.00.  and  timt. 
viitM  uiltiitioiiul  fur 
l'iittiii({  tliott)  fitct'* 
'  iHiu  that  tlia  rulio 


fliM 
l.U 
1.10 

M 


'  iron  in  <1ifTeront  in 
lUtuH  it  in  00:120; 
BO).     Thill   ttiUn   uh 

cust  to  oinploynra 
0  United  Htntun  in 
of  producing  tlioin 
\n  ditVcronco  in  the 
Vniffican  oniploycrs 
to  wheat;  Swedish 
nore  profitable  than 

of  prices  would  bo 

at  where  a  regular 
there  must  be,  for 


A  Mvttnrt  tj  Vvmp**ralm  VotL 


a33 


th«  tin*  biinj;,  a  ditftlMiM  in  rniiipiirntivi!  cimt  at  luriat 
•h|ua1  tu  the  cu«t  of  tmn*iMirtiiig  th«  giKHtn  uxrhangiid. 
How  thti  ihtlMnMico  ariMttt,  whoth«r  or  not  it  iH  iiitntNMii- 
Illy  |M<rmniii<nt,  aii>l  wlutthfr  it  in  uxtHMluuit  in  any  ca.iu 
Ui  iiniNHttt  (tiuiiturvailiiig  dnlitts  to  chuck  thit  irudu,  are 
i|UcaliiiiiA  nut  now  undwr  considunition.  We  nr^  huru 
concuriu'd  only  with  diHcovvring  thtt  primunt  factN  which 
nil  uxintitiK  tra<lo  tinplicn.  VVhntovnr  viows  wu  may  hold 
iiH  to  tlut  «!X|N>di(<ncy  of  proU'ctivo  dntixH,  wtt  ant  in  duly 
hound,  m  Ntudonts,  to  Hunnh  out  tint  fuctH  which  ^ivu 
riHc  to  tlM>  tciniiMicy  to  trndo  IhiIwccii  countricN. 

6.  How  the  Diffaranoe  in  Comparative  Cost  might  be 
Afoertained.  —  How  groat  the  whole  ditTerunce  in  conio 
pamtivo  coat  iiiny  Ih;,  in  any  cnsu,  cannot  ho  infurn-d 
from  the  prices  at  which  the  trudn  (.{ih'h  on.  Wc  can 
only  bo  Huro  that  it  in  nt  h-unt  Honivwhat  f^^rttat^'r  than 
tlio  difl'ttrcnco  bctwuun  the  ratios  of  the  pricon.  In 
onlcr  to  diHcovor  how  much  jurenter  it  is  than  this,  the 
tnido  would  have  to  Ikj  stop||)od.  For  tho  pri(!c  of  wheat 
in  Sweden  is  kept  down  by  the  cheap  supplies  from 
tho  United  States;  and  tho  price  of  iron  in  the  United 
States  is  kept  down  by  tho  cheap  importation  from 
Sweden. 

If  two  countries  wished  to  discover  tho  extent  of  the 
difference  l)ctween  their  ratios  of  cost  to  cost  in  the  case 
of  the  articles  exchanged,  they  might  obviously  do  so 
by  means  of  import  duties.  By  imposing  duties,  and 
raising  them  year  by  year  until  they  readied  a  height 
just  suiBcient  to  prevent  the  trade,  they  could  find  in  the 


J 


3:34 


rolilical  Economy. 


new  ratio  of  prices,  in  each  country,  a  pretty  accuratts 
measure  ("f  the  (Ullereuce  in  comparative  cost.' 

Let  us  suppose  that,  in  our  example,  it  were  fouml  that 
with  a  duty  of  thirty  cvnts  a  humheil-weight  on  iron, 
(111(1  fifteen  cents  a  bushel  on  wheat,  some  trade  would  g(j 
i.u  permanently,  l)ut  that  at  any  higher  rates  the  trade 
must  cease.  "NN'heiit  must  then  stand  at  Sl.20  a  bushel 
in  Sweden,  and  iron  at  ^l.^O  a  hundred-weight  in  the 
United  Slates;  these  being  the  prices  necessary  to  give 
the  trad(!r8  a  profit  on  the  business,  after  paying  the 
additional  charges.  The  ratio  of  the  price  of  wheat  to 
that  of  iron  in  the  United  States  would  then  be  90: 150, 
and  in  Sweden  it  would  be  120  :  100  (or  90:75). 

On  the  supposition  that  these  prices  continued,  they 
might  safely  be  taken  to  show  the  comparative  cost  of 
production  of  wheat  and  iron  in  each  country.  For, 
if  American  employers  found  the  production  of  iron  at 
$1.50  a  hundred- wtiight  more  profitable  than  the  produc- 
tion of  wheat  at  ninety  cents  a  bushel,  they  would  grad- 
ually desert  the  production  of  wheat  altogether.  And 
so  of  the  production  of  wheat  in  Sweden ;  if  Swedish 
employers  found  it  more  profitable  to  raise  wheat  at 
SI .20  a  bushel,  than  to  produce  iron  at  SI. 00  a  liundrcd- 
weight,  they  would  gradually  desert  the  production  of 

»  Strictly,  it  would  not  matter  whether  the  barrier  to  the  exchange 
were  duties  imposed  by  both  countries  or  a  sufficiently  high  duty  ini 
posed  by  one  of  the  two.  The  former  alternative  is  suggested  because 
it  works  out  m(>ie  simply, -the  trade  being  checked  eipially  on  each 
side.  If  the  check  came  from  one  side  only,  there  would  be  a  transfer 
of  money  and  a  re-adjustmeut  of  prices  iu  each  country. 


-^  jawtMS******©^"*''*-'^"''' 


Dijfercncca  in  Cum jxtrit live  (■ost. 


335 


pretty  accumti! 
'0  cost.* 

,  were  fouml  that 
1-weight  on  iron, 
e  triule  would  y(j 
r  rfttes  the  trnile 
it  an. 20  a  bushel 
ed-weight  iu  the 
necessary  to  give 
ifter  paying  the 
)rice  of  wheat  to 

then  he  90: 150, 
[or  90 :  75). 
i  continued,  they 
nparativo  cost  of 
h  country.  For, 
uction  of  iron  at 

than  the  j)roduc- 
they  would  grad- 
al  together.  And 
eden ;  if  Swedish 
,o  raise  wheat  at 

!!i;i.00  a  hundred- 
;he  production  of 

vrricr  to  the  exchange 
[icieuUy  higli  duty  iin 
e  is  suggested  because 
L'cked  eciually  on  each 
re  would  bo  a  transfer 
h  country. 


iron.  Tf  the  production  of  wheat  goes  on  in  the  United 
States,  and  of  iron  in  Sweden,  on  tlH'.sa  ternis,  it  must  he 
because  the  ratio  of  cost  to  cost  in  Sweden  ditlers  from 
that  in  the  United  States  to  tlie  same  extent  as  the  ratios 
of  the  prices  diU'er.  That  is  to  say,  in  Sweden  seventy- 
live  busliels  of  wheat  cost  employers  as  much  ns  lunoty 
hundred- weight  of  iron  (75  x  $1.20  =  90  x  $1.00);  wliereas, 
in  the  United  States,  one  hundred  and  lifty  bushels  (tf 
wheat  are  produced  at  the  same  cost  as  ninety  hundred- 
weight of  iron  (150  x  $0.90  =  90  x  $1.50).  Or,  changing 
the  form  of  statement,  Sweden's  ratio  is  1  bu.  =  1  ^  cwt., 
whereas  ours  is  1  bu.  =  g  cwt. 

7.  Difference  in  Comparative  Cost  a  Basis  for  Trade  in 
all  Cases.  —  These  figures  tell  us  nothing  as  to  the  source 
of  the  difTerence  in  comparative  cost ;  nor  does  it  matter 
in  the  least,  as  regards  the  course  of  the  trade,  how  the 
difference  arises.  It  may  be  wholly  due  to  itiferiority  on 
Sweden's  part  as  a  producer  of  wheat,  or  wholly  to  supe- 
riority on  her  part  as  a  producer  of  iron,  or  partly  due  to 
each  of  these  causes.  Or  it  may  be  that  both  wheat  and 
iron  can  be  produced  with  less  labor  in  the  United  States 
than  in  Sweden,  our  advantage  being  greater  in  the  pro- 
duction of  wheat  than  in  the  production  of  iron.  As  to 
these  points  our  figures  give  no  information ;  they  merely 
make  it  clear  .that  where  trade  exists,  a  difl'erence  in 
comparative  costs  must  exist  as  the  basis  of  it. 

It  may  .seem  strange,  at  first  blush,  that  a  commodity 
could  ever  be  regularly  exported  with  a  profit  to  a  coun- 
try in  which  it  can  be  produced  with  less  labor  than  in 


336 


J'olitual  Economy. 


% 


the  oM.orti..g  country.     Hut  all  that  in  n.ceH«ary  to  hr.ng 
this  ahout  is  a  diflercncc   iii   tho   con.parat.vo  cost   to 
eiupbyers  ..f  vmlucing  any  two  conunodities  in  tho  two 
countries.    The  explanatio.i  ..f  the  seeming  pn/./.U,  .s.  that 
the  money  cost  of  a  conunodity  may  be  less  in  one  coun- 
try than  \n  another,  while  the  true  or  economic  cost  XB 
greater.     Though  it  costs  eniployers  less  money  to  get  a 
hundred-weight  of  iron  produced  in  Sweden  than  i   does 
i„  the  United  SUxtes,  the  (luantity  of  labor  rc-iuired  may 
be   indefinitely  greater   in   Sweden  than  here.     Money- 
wages  and  tho  prices  of  materials  may  be  lower  there 
than  here,  because  the  value  of  money  u.ay  be  higher 
there    than    here.     This    result  would   obviously  come 
about,  if  Sweden  should  buy  freely  of  our  wheat,  with- 
out havuig  any  product  of  her  own  cheap  enough  m 
price  to  be  profitably  exported  to  us.    Her  money  sup- 
ply would  be  gradually  drawn  away;  her  general  scale 
of  prices  and  her  money-wages  would  decline.     If  her 
inferiority  to  the  United  States  be  less  in  i-"  than  in 
other  things,  it  is  clear  that  iron  would   be   the  fir 
thing  to  be  made  low  enough  in  price  to  be  sent  to  us 
with  a  profit  for  the  sender. 

If  any  person  be  disposed  to  doubt  whether  trade  be- 
tween countries  rests  on.  and  implies,  a  difference  m  the 
ratios  of  costs,  he  will  find  it  instructive  to  consider  the 
case  of  two  countries  differing  strongly  in  advantages 
for  production,  but  differing  equally  in  all  c«»nniodxties. 
In  such  a  case,  the  ratio  of  cost  to  cost  vrould  bo  the 
same  in  both  countries,  and  there  would  be  no  basis  foi 


iiecessnry  to  briiijj 
iipiinitivy  cost  t«» 
oditics  in  tho  two 
ling  puzzle  in,  thnl 

•  less  ill  one  coun- 
oconoinic  cost  is 

iss  money  to  get  a 
veden  than  it  does 
abor  rc(iuired  nmy 
lan  here.     Money- 
ay  be  lower  there 
ley  Uiay  bo  higher 
Id   obviously  come 
>f  our  wheat,  with- 
i  cheap  enough  in 
,    Her  money  sup- 

•  her  general  scale 
Id  decline.  If  her 
ess  in  iron  than  in 
would  be  the  first 
Lce  to  be  sent  to  us 

t  whether  trade  be- 
s,  a  difference  in  the 
ctive  to  consider  the 
)ngly  in  advantages 
in  all  commodities. 
I  cost  would  bo  the 
vould  be  no  basis  foi 


Dujmritjf  of  lieaoiircea  ho  JiustH  for  Tnide.      'S'Sl 

a  iiormanen^  trade.  It  might  Imppen  that,  for  some 
cause,  prices  in  one  should  be  enougli  higher  than  pricee 
in  tho  other  to  cau.se  a  movement  of  goods  for  a  time. 
Ihit  gradually  tlie  return  movement  of  money  would 
bring  prices  towards  a  common  level ;  om!  after  another, 
according  to  costliness  of  transportation,  commodities 
would  cease  to  bo  exportable,  until  linally,  even  thorse 
having  greatest  value  in  tho  least  bulk,  would  come  to 
be  so  nearly  equal  in  price  in  both  countiies  that  no 
proKt  could  be  made  by  sending  them.  Then  all  trade 
would  cease.  This  wcjuld  come  to  pass,  even  if  the  one 
could  produce  every  commodity  with  half  of  tho  labor 
re<iuired  to  produce  it  in  tao  other.  An  e([ual  advantage 
in  all  things  has  no  tendency  to  cause  an  exchange  of 
products.  Its  only  tendency  is  to  cause  men  to  emigrate 
from  the  country  of  \)ouv  resources  to  the  country  of  rich 
resources.  This  is  tho  only  way  by  wliicli  people  living 
in  a  country  of  poor  resources  can  get  any  permanent 
benefit  from  a  country  suiKjrior  to  their  own  in  all  points, 
and  equally  superior  in  all. 

8.  International  Values.  —  When  a  trade  exists  between 
two  separate  communities,  what  determines  how  much 
the  product  of  the  one  shall  be  worth  as  compared  with 
that  of  the  other?  What  determines  the  amount  of  iron 
we  shall  get  from  Sweden  in-exchange  for  each  bushel 
of  wheat?  Of  course  this  depends,  at  any  given  time,  on 
the  price  of  each.  But  prices,  as  we  know,  may  change. 
If  wheat  rises  in  price,  or  iron  falls,  we  get  more  iron 
than  before  for  every  bushel  of  wheat.     What  deter- 


PoUtkid  JCeonomy. 


338  __ 

"IThe  loUtive  prices  of  th.  two  arti*., ,»  «  vonua- 

""';:,  t  Lt  place,  we  -ny  -co  that  tW  i,  not„i,,B 
i„     ,i,  ,ort  .,t   excl,anBi"«  to  .uake  the  v„l„e  ..t     a.^l. 
,*^  c„ne„.c„„l  to  tl,e  ,ua„tity  ..t  kl-r  .u..l  wa.tu.R 
r       ml  to  prLluc.  it.     Value  tcn.l,  to  ca.torm  t-,    .»t 
';:;.uct  J.  o.,.y  wl.ere  tl.«e  i,  ...Ion,  o    co,,,p.a.,o,, 
l,..won  the  pmlucer,.     H  i»  ""t  ope.i  t..  the  y.,»i.B 
:r  to  clLe  freely  l«twee„  the  exch„„s..,«  .,,  ua- 
I,:  to  choo»,  for  e.a,u,.le,  hetween  r,>,s.„y  w  eat^ 
I  e  United  State,  an,l  pmlncing  i.""  m  Swe,le„.    We 
1  nothi„8.  therefore,  in  this  kind  of  exrhangrns,  to 
':        le  valnes  under  the  eontr.d  of  co»t  of  1-dnct,... 

The  comparative  costs  of  production  do  however  set 
,i„  iU  with  n  which  the  value,  must  <.rdu,ar,ly  ,tand^ 

;::  our  suppccd  trade  with  Sweden,  the  rat.o  o    e„ 
to  cost  in  each  country  be  a,  6'ven  m  ^  6,  >t  is  ohv.on, 
Lt  the  price  of  our  wheat  to  Sweden  cannot  exceed  the 
111,  to  one  and  one-mth  hundred-weig  t  of 
ir  n      or  L,  we  Uke  less  than  the  price  to  us  of  thre  - 
Zn  of  a  hundred-weight  o!  her  iron.     «  «  pnce  cart- 
"ideof  these  limits  either  way,  one  country  or  the  otl, 
would  rive  up  the  trade;  for  her  employers  could  m  re 
Itlhly  produce  the  desired  article  at  home,  than  the 
exnort  to  be  sold  in  exchange  (or  it. 

Wftin  the  limits  thus  set  by  the  comparative  co,^ 
thrtms  of  the  exchange  are  fixed  by   the   re latrve 
deland  of  each  country  for  the  other'.,  pn-luct.    If 
S;  den  has  a  strong  demand  for  our  wheat  as  compared 


Lavi  u/  JiitrrnntutwH  VkIuih. 


339 


cles,  fts  a  pcrnm- 

thero  is  nothinp 
.0  value  of  i'iv'h 
[ibor  iind  wailing; 
,  conform  to  cost 
111  of  comi>('titioii 
311  to  the  young 
xchanginy  indus- 
raisiug  wheat  in 
in  Svvoilon.     Wc 
.){  exchanging,  to 
4t  of  production. 
\  do,  however,  sot 
ordinarily  stand. 
,  the  ratio  of  cost 
II  §  6,  it  is  ohvious 
cannot  exceed  the 
hundred-weight  of 
rice  to  us  of  three- 
i.     At  a  price  out- 
3untry  or  the  other 
iployers  could  more 
at  home,  than  the 

1  comparative  costs, 
3d  by  tiie  relative 
3ther*.3  product.  If 
wheat  as  compared 


with  our  demand  for  her  iron,  this  will  cau.se  the  prices 
t<»  apjiroach  her  own  home  ratio  (»f  costs;  our  prices  will 
rise  and  lu^rH  will  fall  until  the  prices  of  a  ItiiHliel  of 
wheat  is  nciir  to  the  price  of  (»iie  and  onci-fifth  liundreil- 
weiglit  of  iron.  If,  on  the  other  hand,  our  demand  for 
lier  iron  he  relatively  greater  than  Ikt  demand  for  our 
wlieat,  the  prices  will  approach  our  home  ratio  of  costs; 
the  price  of  a  bushel  of  our  wheat  will  l)e  near  to  the 
price;  of  thriM'-lifths  of  a  hundred-weight  of  hi-r  iron. 

9.  Values  Changed  by  Movement  of  Money.  —  Tliis  prin- 
cipli!  work.s  itstdf  out  in  luuctice  tliroiigli  the  movements 
of  money  in  jiayment  of  international  lialances.  It  may 
tluirefoie  take  many  years  to  aceomidi.sh  its  result;  but 
the  rtisult  is,  in  the  end,  inevitable.  It  works  slowly 
because  it  has  to  change  not  merely  the  prices  tif  the 
articles  traded  in,  but  the  wludcs  scale  of  jirices  and  of 
money-wages  in  the  trading  countries. 

r>y  way  of  illustration,  let  us  sui)iiose  the  trade  with 
Sweden  to  open  with  the  prices  assumed  in  §  5 ;  namely, 
wheat  ninety  cents,  and  iron  ^1.00.  If,  at  these  prices, 
Sweden  buys  one  hundred  bu.shcls  of  our  wheat  ijr  every 
ninety  hundred-weight  of  iron  wo  iinport  from  her,  then 
the  trade  may  go  on  indefinitely  on  this  basis.  If,  how- 
ever, her  demand  for  wheat  be  greater  than  our  demand 
for  iron ;  if,  for  example,  she  buys  a  million  bushels  a 
year  in  excess  of  the  quantity  our  import  of  her  iron 
jiays  for,  then  for  this  excess  she  must  send  us  money 
year  by  year,  '"'he  efTect  will  be  a  gradual  decline  in  flie 
prices  of  her  products,  -  the  ^/lice  of  iron  with  the  rest; 


340 


Fblitical  Jieonomy. 


ftrul  a  grnatial  rise  in  our  i.ricim.-tho  i-rico  (.(  whcit 

with  tlm  n'st. 

This  d(.ul)lo  movement  will  go  (.n  nntil  the  high  pneo 
„f  our  wheftt  cuts  olF  a  i-art  of  her  .l.-nmn.l  for  it,  an.l 
the  low  price  of  her  iron  causes  uh  to  huy  greater  (luanti- 
ties  of  it.     In  this  way  the  trade  will  reach  an  eciuilih- 
rium  and  the  movement  of  nu.ney  will  cease.     Suppose 
that  when  this  point  is  reached,  her  iron  has  fallen  to 
ninety-five  cents  a  hundred-weight,  and  our  wheat  has 
risen  to  ninety-five   -ents  a  hushel.     It  is  very  ..hvious 
that,  in  the  new  situation,  Sweden  gets  h-ss  wheat  f..r 
a  hundred-weight  of  lu.r  iron  than  .she  di.l  at  the  start. 
Her  stn.ng  demand  for  our  product  has  alt.aed  the  terms 
of  the  exchange  to  her  disadvantage,  hringing  U.e  values 
nearer  to  her  own  ratio  of  costs,  namely,  1  hu.  -  If,  cwt. 

If,  at  the  original  prices,  our  demand  had  hw.u  the 
stronger  the  wludo  moveme.it  would  have  heen  reversed ; 
our  prices  would  have  fallen  and  Sweden's  prices  would 
have  risen  until  the  trade  reached  equilibrium.  In  the 
outcome,  a  bushel  of  our  wheat  would  pay  for  less  of 
Sweden's  iron  than  it  did  at  the  outset.  The  values 
are  brought  nearer  to  our  own  ratio  of  costs,  namely. 

1  bu.  =  g  cwt. 
10.  How  these  Principles  Apply  in  Actual  Trade- We 

have  thus  far,  for  the  sake  of  clearness,  confined  our 
view  to  the  simplest  possible  case  of  exchange  between 
separate  countries.  Of  course,  in  practice,  the  trade 
between  different  parts  of  the  world  is  infinitely  com- 
plex    Each  country  trades  with  many  others,  exportmg 


,^^^*^^*U-i«*^^*Ii«f»B^•*l**'«■■e-■--'»•*' 


Hou)  I'riacipleH  Apply  in  Ariaal  Trade.         341 


jiru; 


H)    < 


if    wllCIlt 


1  tlio  liiRli  pricti 
imiid  for  it,  iiinl 
y  |j;r((ut(ir  (lUftiiti- 
oiuOi  an  wiuilil)- 

Ct'JlHt!.       Su|»l><)Ht' 

oil  has  fnlUiH  to 
[  our  wluMit  liiis 

is  very  (»l>vi(n.s 
H  less  whout  fur 

(lid  at  tliii  Hturt. 
nlt(!ri!<l  tli<3  tiirius 
iiigiii^^  tlio  values 
,  1  bu.  =  1 1  cwt. 
1(1  had  \iwn  tlio 
ve  been  roversed ; 
en's  prices  would 
ilibriuni.     In  tlie 
I  pay  for  less  of 
tset.     The  values 
of   costs,  namely, 

ctnal  Trade  —We 

less,  confined  our 
exchange  between 
ractice,  the  trade 
is  infinitely  com- 
y  others,  exporting 


and  importing  tt  gnwit  variety  of  commodities.  Ihit  tlio 
principle  governiii;,'  all  exchanges  must  bo  the  same. 
Kvery  country  exports  those  tilings,  and  those  only,  that 
have  in  sonits  ot!i(!r  country  a  pri(;o  enough  high(!r  than 
li(!r  own  to  make  tho  exportation  a  source  of  gain  to 
those  who  carry  it  on.  I'Jich  country  imports  only  tiioso 
things  that  have  iu  some  other  country  a  price  m  much 
below  her  own  that  tho  importer  can  make  a  profit.  And 
these  differences  of  price  can  exist  permanently  only 
as  a  result  of  diirorences  in  tho  comparative  c(jst  to 
employers  of  producing  things  in  difTerent  countries. 

To  the  trade  of  each  country  it  is  as  if  all  other  coun- 
tries were  one.  Her  exports  go  wherever  the  price  is 
highest,  and  her  imports  in  return  come  from  wherever 
their  price  is  lowest.  Our  wheat  may  go  to  England 
and  wo  may  get  the  iron  in  return  from  Sweden,  — 
simply  turning  over  to  the  latter  country  our  claim  on 
England.  That  would  of  course  leave  England  indebtad 
to  Sweden ;  but  with  that  wo  should  have  no  concern. 
Our  necessity  is  confined  to  giving  other  countries  as 
a  whole  as  much  as  wo  get  of  them. 

Trade  goes  on,  at  any  given  time,  on  the  basis  of  the 
existing  prices.  If  these  prices  cause  any  country  to 
import  more  than  her  exports  pay  for,  her  prices  will 
be  lowered  gradually  by  an  outflow  of  her  money.  Con- 
versely, if  any  country's  exports  are  more  than  sufficient 
to  discharge  her  liabilities  to  all  other  countries,  her 
general  scale  of  prices  will  be  raised  by  an  inflow  of 
money  from  other  countries.    In  this  w/ay,  the  foreign 


942 


Ihliticnl  Ei'ononty. 


tmdo  of  each  ••uuntry  Ih  l.rouKht  to  «u  e.iuiUl.riuui  .ifU-r 
ovory  dirtturbanct^  of  U»'  ImiIuiko. 

A  n^xi^nd  f.ill  ill  tWo  l.ricfH  of  ll.it.gH  i.n..lu.H..l  ui  any 
cuunlry  luuy  incro«Hc  itn  ...xiK,rt«  in  two  .listinct  ynyH. 
It  nmy  cauno  otlu-r  couutru^s  to  ».«y  inor«  ..f  H.o  articlcH 
they  bought  i.roviouHly.     Sof.maiy.  it  may  ..mko  it  i-oh- 
Hiblo   to   export,  with  a   i-rolit.   artirl.H   that   wore   not 
l.reviouHly  oxi-ortablo.  becauHO  tltcro  wan    not  aillorencu, 
onou.rh  between  the  home  l-rice  and  the  foreign  pnce. 
There  are  usually  son.e  arlioleH  that  aro  on  the  verg.> 
oi  oxnortability.  and  a  H.uall  de<din.>  of  prices  n.ay  thus 
lK3  suflicient  to  increase   considerably  the  volnn.e  of  a 
c.untry's  exports.     In  the  same  way  a  small  nse  of  the 
general  scale  of  prices  in  a  country  n.ay  cause  increase 
of  imports,  by  introducing  new  articles  as  well   as  by 
swelling  the  importation  of  .dd   ones.     The  importance 
of  this  principle  lies  in  the  fact  that  it  makes  the  estab- 
lishment  <.f  equilibrium  more  prompt  than  it  w.nild  be 
if  the  whcde  burden  came  on  a  single  commodity,     lor 
example,  in  the  case  supposed  on  page  340.  the  decline  of 
Sweden's  prices  may  not  have  to  proceed  far  enough  to 
bring  iron  down  to  ninety-live  cents  a  hundred-weighty 
A  less  decline  may  open  a  way  for  the  exportation  of 
Bomo  other  commodity  not  previously  exported,  and  this 
mav  arrest  the  further  outflow  of  money. 

The  higher  a  country's  general  scale  of  prices  and 
money-wages  (that  is  to  say.  the  lower  the  value  of 
nioney  in  a  country),  the  more  favorably  does  she  trade 
with  other  countries.    Everything  she  exports  goes  far- 


Sourcti  0/  Difftrtnee  in  Comparative  Co»t.        343 


etluiUhrium  ftftii 

n  pnuluccil  iu  ii»y 
two  aiHtiiict  wayH. 
lions  «»f  ti»o  articlcH 
limy  iniiko  it  ]•"«- 
Ins    that   wtsro    not 
wan    not  (UlVorenct! 
,  the  foiviyu  i»ii(('. 
1  aro  on  the  v«r«?<! 
of  prices  nmy  thus 
y  tht!  vohmu!  of  11 
a  .snmll  riHO  of  tho 
nmy  cauHo  incrcnsi'. 
clcH  as  well   as  by 
,8.     The  importance 
it  makes  the  estab- 
)t  than  it  would  hn 
le  commodity.     For 
;e  340,  the  decline  of 
oceed  far  enough  to 
,8  a  hundred-weight. 
•  the  exportation  of 
ly  exported,  and  this 
loney. 

scale   of  prices   and 

lower  the  value   of 

urahly  docs  she  trade 

she  exports  goes  far- 


ther towards  paying  for  imports  than  it  would  do  If  the 
levtd  of  prices  were  lower.  K«ir  this  reu.son  11  country 
that  produces  gold  for  other  countries  has  a  standing 
advantage  in  foreign  trade.  It  gets  all  its  imports  more 
cliciiply  liecause  «  f  tlie  steadily  high  hivel  of  its  pricoH. 

11.  Sources  of  Differ.'noo  in  Comparativo  Cort.— The  <  hicf 
sources  of  dill'erencu  in  the  ratio  of  cost  t<»  cost,  in  diil'.ir- 
ent  countries,  m4y  he  gnniped  uiulcr  tliree  general  hvads : 

(1)  DiffitrenccH  in  climate,  .soil,  mineral  wealth,  an.l 
other  natural  resources.  Kach  of  the  exch,ihging  coun- 
tries may  hiivo  great  natural  facilities  for  the  production 
of  some  commodities  which  the  other  could  produce  <tnly 
with  dilViculty,  or  not  at  all.  The  trade  l)etween  tropical 
countries  and  countries  of  cooler  climate  is  largely  due 
to  this  class  of  causes. 

(2)  Differences  in  the  industrial  character  of  the  in- 
habitants of  dillerent  countries,  in  their  degree  of  civil- 
ization, etc.  The  trade  between  a  highly  civilized  and  a 
semi-barbarous  country  may  bo  due  to  this  cause.  The 
natural  resources  of  the  two  countries  nmy  Ik)  similar; 
but  the  possession  of  nmchinery,  and  of  skill  in  using  it, 
gives  the  civilized  country  great  comparative  advantages 
in  the  production  of  things  that  are  nmde  by  the  use  of 
machinery.  This  makes  a  basis  for  trade,— the  civilized 
country  giving  nmchine-raade  goods  in  exchange  for  such 
things  that  have  to  be  produced  mainly  by  hand.  In  the 
same  way,  any  special  aptitude  possese-jd  by  the  jKioplc 
of  a  country  may  create  an  occasion  for  trade  with  other 
countries. 


su 


Mttifdt  AVortomy. 


(H.)  Difforoncoi-   in  denHily  of  population.     TW«  l»  » 
oiiiinon  M.um.  ..f  Hiulu  ».flw.nui  n«w  and  ol.l  countrioH 
Two  ..,u.ari««  .nay  Ih>  .i"ito  alike  iu  natural  renourcH. 
and  in  tho  inau«tri»l  .luulity  of  tlieir  jHioplo;  but  on.- 
,ufty  1,0  rtn  oMor  country,  with  .le.wer  population,  than 
tlui  oth«r.     Of  course  the  ..no  with  tho  donmir  p..pulati..n 
it  tho  ftr«t  to  fool  tho  offsets  .)f   .liniiniHliiny   roluruH 
Wh.'n  its  own  houjc  roHourcos  of  any  kin.l.  workc.l  at 
ihrir  p..int  of  .auxunum  return.  laH^o.uo  insumcient  f..r 
the  nods  ..f   its  iHM.pl.'.  tho  products   affected   r.HO  u. 
price     When  tlu:  rise  becomes  sufficiont  to  cover  coet 
of  tranHp(.rtation,  theno  pro.luct8  begin  to  bo  imp<.rto.l 
from  tho  oth.ir  couiitry.  where  increane  of  tho  production 
is  still  posHiblo  without  increano  .if  cost 

At  first,  there  may  bo  no  commodity  low  enough  w 
prico  in  tho  older  country  to  make  n  return  trade  pos- 
siblo.  I"  not.  an  uutwar.1  How  of  money  ensues,  and 
prices  fall  until  a  return  trade  is  developed,  in  comra.Kl- 
ities  not  aiTccted  by  dimiuiBhing  returns.  Since  manu 
facturing  is  practically  Iree  from  the  law  of  diminiehmg 
returns,  it  i.s  inevitable  that  tho  exports  of  tho  older 
country  should  consist  ..f  manufactured  articles. 

H.)  long  n.s  the  increasing  deman.l  of  the  older  country 
can  be  supplied  by  tho  new  country,  without  increase 
of  cost,  tho  tra.le  will  proceed  on  this  basis,  growmg  xn 
voh.mo  as  years  go  by.  When,  at  length,  the  ettect«  of 
.Uminishing  returns  l,cgin  to  be  felt  in  the  new  country 
ttls...  in  the  pro.luction  of  the  commodity  it  supplies  to 
the  other,  tho  price  will  begin  to  rise  in  both  countries. 


Difftrtnre»  in  W>tge»  lutt  a  CauM  »/  TrniU. 


346 


itlon.     Thii  l»  a 
ml  old  countriuH 
mtural  rMOttiw*, 
IHjoplo;  but  ow 
l»o|>»iIutioii,  thiiii 
rk'liWir  i-npilliition 
liiiishiii}^   nauriis 
kind,  worked  at 
10  in8uft\cieHt  fur 
,   affected  rise  in 
uiit  to  cover  cost 
I  to  bo  im|tortod 
of  the  production 

ty  low  enough  in 
return  trade  po8- 
noney  ertsues,  and 
lopiid,  in  comraod- 
ma.  Hince  manu- 
liiw  of  diinii»iehin;i 
ports  of  the  older 
ed  articles. 

the  oUUjr  country 
f,  without  increase 
8  basis,  growing  in 
iiirth,  the  effects  of 
in  the  new  country 
odity  it  supplies  to 
J  in  both  countries. 


The  iuorj  |h.p«1ohh  country  will  continue  to  iiuport  thu 
arti.le  from  tlio  other,  but  the  incr»Mwe  of  supply  noedetl 
by  her  from  year  to  yvnr,  will  now  lie  iiartly  »t  whoVjr 
prcMluctid  at  home. 

ThiH  prin.iido  oxplains  why  it  in  that  countvira  »o 
commonly  pro.luce  a  part  of  the  nfi<eHHary  supply  of  on 
article  at  horn.',  and  pro-ure  llu-  balance  by  fortiign  trade. 
It  alHo  indicatcH  the  natural  limits  of  trade  between  new 
and  «)ld  countries. 

12.   Difference*    In   W»g«i   not  a  Ctu»e   of  Trtdo — 
It  evidently  foUoWH,  from  the  nature  of   the  case,  that 
differences   in    the    general    level   ot    wages,  comparing 
country  with  country,  make   no  basis  for  exchange  o( 
products.     A  high  or  o  low  level  of  wnges  in  a  country 
ulVects  all  products  alike.     For  example,  the  high  level 
of  waj,'os  in  this  country  extends  to  the  production  of 
wheat  and   beef,  a.s  well  as  to  the  pr.)du(tion  of  ch»th 
and  steel  rails.     If  that  were  the  only  difference  between 
this  country  and,  say  England,  it  could  not  make  cloth 
mid  steel  rails  dearer  here  than  in  England,  and  at  the 
same  time  make  wheat  and  Iwof  cheaper  here  than  there 
Nor  can  the  lower  level  of  wages  pnvailing  in  Knghmd 
bo  the  fundamental  cause  of  the  lower  price  of  her  clnih 
and  steel  rails;  because  it  docH  nt.t  nuike  her  wheat  and 
heof  low  in  price  also.     A  circumstance  that  is  common 
t(»  all  the  industries  of  .ach  country,  could  not  bring 
about  that  difference  in  the  ratio  of  price  to  price  in  the 
two  countries,  \s  liich  alone,  as  wj  have  seen,  mu,.08  ex- 
change of  products  possible. 


346 


t\>lUienl  Kfommy. 


U,i,uMul.t!Hii«.  howuvt-r.  llwt  Kiiglwli  cl')ll»  U  bruuKl.l 
ovur  h.<M  ic.  Ik.  noia  ..Illy  wlu'n  th«  i>ric«  U  lowur  lliehi 
Ihiiii  huro,  it  limy  ■wmi  tlmt  u  riw  «.t  iui»ii«ywug«i  in 
Ki»«liiii.l.   iiiiulit  HO  ruimi  tho   inonuy   cunt  of   lit-r  ololli 
AM  Ui  "top  lilt'   t'xiMirtutioii  '  f  it  to  lu.     Thin  may  li«i 
Kriinto«l,  if  tiK*  iiu'iiniiiK  Ik;  tlmt  nn  iiurim«Ml  H»i|i|ily  of 
money  ill  (iriuit  Biituiii,  miglit  miMt  \wx  i"rlci'n  to  nuch 
uii  oxtoiit  tt»  to  chuck   greatly,  or  «v.>ii  iitop  oiitlruly, 
hiir  oxiHtrt  trade.    Uut  in  ordur  t«»  judy**  of  the  r.!»ult  wo 
mutt  look  at  th«  whole  laHo;   wu  iinut  not  forKut  th« 
ofloct  of   thu  higiwr  pricoH  «mi  ht-r  imiiort  trade.      Tho 
outtlow  of  monny  that  would  arino  to  pay  for  importfl. 
would  prcHcntly  bring  about  u  fall  of  \wt  inonny-wngoH 
and  pricop,  Olid  hur  cxiwirt  of  cloth  would  h«  resumed. 
If  tho  x'\m  of  hor    inoiioywaguH  be    nieoiit    in   tho 
Honso  of  greater  purchasing  power,  hor  Hupidy  ^.f  money 
being  no  gruator,  but  thu  laborers  getting  a  larger  pro- 
portion of  it.  then  the  aiiHWer  w  that  tho   ri.Ho  woul.l 
have  no  ellect  on  prices,  and  conHctiuently  wouhl  have 
no  elloct  on  the   international   trade.     Tho  i.nly  result 
would  bo  a  fall  of  tho  profits  of  English  employers,  and 
tho  fall  would  oxtond  equally  to  all  Knglish  industries. 
The  producers  of  ch.th  could  got  no  higher  price  for  it  at 
homo  than  before,  oml  wouhl  consequently  have  tho  snnio 
motive  as  before  for  sending  it  to  us. 

Similarly  a  decline  of  money-wages  ond  prices  in  the 
United  States,  caused  by  a  diminished  supply  of  money 
ill  this  country,  might  temporarily  sU.p  the  importation  of 
goods  from  abroad;  but  increase  of  exports  would  pros- 


IhtttiMl  Trndi  mny  be  " InUfn^ittimrtl"       .'U7 


I  cloth  U  bruut;lii. 
k'u  in  luwur  tlivru 
•t  luoiiny- wagon  in 
cuat  of   liur  olulli 
ua,     Thin  may  In? 
urtmjtotl  M»i|i[)ly  <»! 
liiT  iirlcun  to  nuch 
iviiii  »to|»  untlroly, 
^11  »)f  tho  ruHult  wi! 
iiMt  tioi  for^iit  til*) 
iijiort  trude.      Tho 
It  i>uy  fur  importfl. 
I  \w.r  iiionny-wogoH 
/ouKl  ho  rusunicii. 

be  inuniit  in  tliu 
ir  Hupply  yf  money 
ittiiig  ft  largor  pro- 
mt tho  rJHO  woultl 
[uuntly  wouhl  huve 
I.  Tho  only  result 
lish  oniployurs,  auii 

KngUHh  industriuH. 
li^hor  price  for  it  at 
L'ntly  huvo  thu  snmu 

IS. 

}8  onil  prices  in  tho 
;d  supply  of  money 
•p  tho  iniportntion  of 
exports  would  pres- 


•uitly  lirinK  un  liii;r»frt«o  of  in«»i»'y  fro»»  ahroiul.  ant!  thl^ 
wonlil  rutmo  i.nr  prl««n  and  monnywagi'H  ngain,  On  tho 
othor  hand,  a  fall  of  moiu-y  wii««'n  du«  dimply  to  dimln- 
Ulu id  mivlnu,  would  nnt  faunn  our  pri«'»'»  to  fall,  (H«« 
Chapter  XIII,,  ib.)  It  would  only  ruinu  tho  prollU  of 
our  muployt'rn. 

Tho  truo  viow,  thon,  would  Hm-ni  to  \m  that  whoro  ft 
haHiH  fxlHtH  for  i'xchan««  of  productH,  owinj?  to  dilVonnKuj 
in  th<'  ratios  of  cost  to  nmt,  tlm  tratln  it.«(df  will  bring 
tht!  MHilf  of  luonoy-wagfs  and  pritos  in  both  coiintrioi 
into  the  pioptr  ridation  for  currying  on  tho  wxchdngo. 
ilut  tliis  adjustiniiiit  tloos  not  alloct  tho  lovel  of  real 
wagi'H  in  cithor.  That  \h  govorni'tl  in  ovi-ry  country,  n<it 
by  tho  nlmoluto  height  «>f  its  n»oney-wagi!s  nnd  prices, 
liiit  by  tht!  ri'laliiMi  bctwtifii  tht)  two. 

13.  Much  Domettlo  Tr»de  ii  "International."  —  It  must 
nut  Im!  HUpptwi'tl  tli;it  tilt)  foregoing  piinciplt's  apply  only 
to  tratit)  between  separate  nations  in  tho  ptditical  sense. 
I'he  wonl  "  inUirnational "  is,  in  fact,  not  aptly  chosen 
lo  dosigniito  tho  sort  of  exchanging  to  which  it  ajtplies. 
All  trade  h  subject  to  these  j»riiifipleH,  if  it  takes  place 
Itetween  <  onununities  that  havti  not  fret)  movement  of 
savings  and  laborers  from  the  one  to  tho  other.  Much 
of  the  tloinesti.)  tratlo  of  every  country,  esiiecially  of 
every  large  country,  is  "international"  in  the  ectmomic 
sense.  In  ovir  tiwn  case,  for  example,  the  trudt)  between 
north  antl  south,  or  between  the  Tacific  slope  and  tho 
Atlantic  sloiie,  ilejieinls  on  the  same  conditions  and  ftd- 
lows  the  .same  rule  of  values,  ns  trade  between  the  United 


848 


Political  Economy. 


States  and  the  United  Kingdom.  The  same  is  true  of 
the  trade  bet\veen  many  sections  of  the  country  that  are 
less  widely  separated. 

On  the  other  hand,  apart  from  the  effects  of  Customs' 
regulations,  there  is  nothing  to  distinguish  the  border 
trade  of  two  neighboring  countries  from  the  local  domes- 
tic trade  of  one  and  the  same  country.  On  the  supposi- 
tion that  the  laborers  on  each  side  of  the  boundary  line 
pass  freely  from  the  one  side  to  the  other  in  search  of 
employment,  the  value  of  commodities  in  the  border 
trade  is  governed  by  cost  of  production.  That  is  to  say, 
it  is  not  "international"  in  the  economic  sense. 


♦  ■ 


same  is  true  of 
country  that  are 

fects  of  Customs' 
juisli  the  border 
the  local  domes- 
On  the  supposi- 
the  boundary  line 
ther  in  search  of 
Bs  in  the  border 
1.  That  is  to  say, 
mic  sense. 


CHAPTER    XXVI. 

FRBB  TRADE   AND   PROTECTION. 

Thus  far  we  have  endeavored  only  to  get  at  the  facts 
of  trade  between  countries.  As  to  the  points  brought  out 
there  is,  I  think,  no  room  for  doubt  or  difference  of  opin- 
ion. We  must  now  touch  briefly  on  the  grounds  of  the 
great  controversy  as  to  the  benefits  of  international  trade. 
I  shall  first  endeavor  lo  sLate  briefly  the  general  position 
or  tliesis  maintained  by  each  side  in  the  controversy ; 
then  I  shall  try  to  give  a  summary  of  the  chief  argu- 
ments and  counter-arguments,  by  which  the  advocates 
of  each  theory  commonly  sustain  their  position :  — 

1.  The  Theory  of  Free  Trade.— The  thesis  of  the  ITree- 
traders  may  be  stated  as  follows: 

"Free  Trade  increases  the  productiveness  of  industry 
in  all  countries.  It  enables  the  people  of  every  country 
to  use  their  b^st  natural  advantages.  It  thus  allows 
thingy  to  be  produced  where  they  can  be  produced  most 
easily.  The  result  is  to  make  the  product  of  universal 
industry  greater  than  it  could  be,  if  the  people  of  every 
country  were  required  to  produce  all  commodities  at 

home.  _    ,     , 

"For  example,  if  ui'dtr  Free  Trade,  New  England  were 
found  exchanging  shoes  for  potatoes  with  Nova  Scotia, 
the  mere  fact  of  the  exchange  would  be  proof  that  each 

349 


**,%»-- 


350 


Political  Economy. 


country  was  gcttinj^  the  importod  article  for  less  labor 
than  it  wouUl  cost  her  nt  home.     For  the  price  of  shoca 
is  hi},'lu;r  in  Xova  Scotia  than  in  New  En<^lantl,  and  the 
price  of  potatoes  is  hi^^her  in  New  England  tlian  in  Nova 
Scotia ;  otherwise  the  trade  would  not  go  on.     The  ratio 
of  cost  to  cost  nnist    tlierefore  be  dill'crcnt  in  the  two 
countries:  how  widely  ditl'erent  could  be  known  only  by 
discovciring  how  iiigli  duties  would  have  to  lie  imposed 
in  order  tt»  stop  the  trade.     Suppose  the  ratio  of  cost  to 
cost  in  each  country  were  found  to  bt; :  for  New  l-lngland 
1  pair  '>r  shoes  =  2   barrels  of  potiitoes,  and   for  Nova 
Scotia  1  pair  of  shoes  =  3  barrels  of  potatoes.     Sujtpo.se 
further  that  there  are  one  thou.saud  iuen  in  New  England 
whose    laljor  is  to  be    nsed  in    procuring   potatoes,  and 
another  one  thousand  in  Nova  Scotia  whose  labor  is  to 
be  used  in  procuring  shoes.     The  N<nv-England  laborers 
can  produce  125,000  pairs  of  shoes  in  the  same  time  they 
would  rcipiire  to  produce  250,000  barrels  of   i)otatoes. 
The  Nova-Scotia  laborers  can  produce  300,000  barrels  of 
potatoes  in  the  same  time  they  would  re([uire  to  produce 
100,000  pairs  of  shoes.     If  the  New-England  men  pro- 
duce potatoes  and  the  Nova-Scotia  men  produce  shoes, 
the  product  for  the  two  countries  is  250,000  barrels  of 
potatoes  and  100,000   pairs  of   shoes.     If,  on  the  other 
hand,  the  New -England   men  jtroduce  shoes  for  Nova 
Scotia  and  the  Nova  Scotians  produce  potatoes  for  New 
England,  the  result  is  125,000  pairs  of  shoes  and  300,000 
barrels  of  potatoes.   The  difference  .in  favor  of  Free  Trade 
(subject  to  some  deduction  for  cost  of  transportation)  is 
25,000  pairs  of  shoes  and  50,000  barrels  of  potatoes. 

"This  superior  productiveness  of  industry  in  both  coun- 
tries, under  free  exchange,  goes  to  swell  the  rewards  of 
producers.     If  all  countries  that  have  set  up  barriers 


Free  Tmdf.  and  Protection. 


351 


I  for  less  labor 
!  j>ri('i!  of  slitKiS 
i<^liiiitl,  and  the 
((  tlian  in  Nuva 

on.     The  ratio 

i:iit  ill  till!  two 

known  only  by 

to  Itc!  iniposud 
ratio  of  cost  to 
V  New  Knj^land 
,  and  for  Nova 
atoos.  Snj)i)o,sc 
ill  Now  Kn[,'land 
<^  potatoes,  and 
hose  labor  is  to 
'.ugland  laborers 

same  time  they 
els  of  ])otatoes. 
)0,000  barrels  of 
[uire  to  produce 
igland  men  pro- 
1  produce  shoes, 
lO.OOO  barrels  of 
If,  on  the  other 
shoes  for  Nova 
)otatoea  for  New 
loes  and  300,000 
or  of  Free  Trade 
transportation)  is 
Is  of  potatoes, 
try  in  both  coun- 
1  the  rewards  of 

set  up  barriers 


against  free  exchange  should  throw  tluMu  down,  the  ell'eet 
would  be  like  that  of  an  inimenst!  improvement  in  pro- 
duction. Wages  and  profits  would  bt;  higher  in  all  of 
them  than  before,  because  the  i)roduct  of  industry  would 
be  greatly  increa,sed." 

2.  The  Protectionist  Position.  —  Tlie  ginioral  position 
taken  by  the  advocates  of  Protection  may  be  stated  as 
follow."? : 

"  Kvery  country  ought  to  dcvidop  lu^r  resources  of  nil 
kinds  in  a  healthy  and  symmetrical  proportion.  Tlie 
teiulency  of  unrestricted  trade  with  other  countries  is  to 
create  a  lop-sided  development.  Certain  lines  of  jiroduc- 
tion,  once  entered  upon,  are  liablo  to  be  foliownd  to  the 
exclusion  of  everything  else.  I'.y  the  mere  fact  that  they 
are  established,  that  the  requisite  machinery,  implem<!nts, 
skill,  and  business  arrangements  are  at  hand  for  carrying 
them  on,  they  tend  to  absorb  the  whole  energy  of  the 
people. 

"  The  result  is  injurious  in  every  way.  It  condemns 
a  people  to  lasting  poverty,  because  it  leads  to  the  neg- 
lect of  the  national  resources.  The  single  produ(!t  which 
receives  all  attention  is  produced  in  too  great  quantity, 
and  commands  but  a  small  price  in  the  foreign  markets 
to  which  it  has  to  be  sent.  Much  of  even  this  small 
price  is  eaten  up  in  the  costs  of  transportation  and  the 
charges  of  middlemen,  so  that  the  producers  receive  less 
and  less  for  their  labor.  Yet  there  is  no  aveime  of  escape 
for  them.  The  products  of  foreign  labor,  coming  in  with- 
out restriction,  are  sold  at  such  low  prices  as  to  make 
hopeless  any  attempt  to  compete  with  them  in  producing 
like  articles  at  home.  The  foreign  producers  have  all 
the  advantages  of  an  established  industry.    They  have  the 


352 


JHitical  Economy. 


machinery,  the  Hkille<l  lahorers,  a.id  puasession  of  the  mar- 
ked Tlicy  stand  ready  to  crush  any  attempt  at  setting 
up  a  rival  industry  here.  Rather  than  lose  control,  they 
would  idace  their  go..d8  here  at  prices  which  woual  be 
simply  ruin.^u8  to  the  home  producer,  struggling  with 
the  dilUculties  of  starling  a  new  industry. 

"  Protection,  on    the    other    Imnd,  guarantees    to    the 
founder  of  a  new  industry  a  safe  and  remunerative  sale 
for  his  product.     He  is  enabled  to  pass,  without  ruinous 
loss,  through  the  early  sUiges  while  he  and  his  workmen 
are   aciuiring   the   necessary  knowledge   and   skill,  and 
while  he  is  making  those  commercial  connections  which 
are  necessary  to  the  success  of  an  enterprise.      In  this 
way  a  country  builds  up  for  itself  a  variety  of  industries. 
Its  people  have  the  great  advantages  that  come  from 
diversified  pur.mits.     The  growth  of  wea  th  is  rapid,  be- 
cause all  the  national  resources  are  brought  into  use,  and 
every  producer  is   encouraged  by  the  prospect  of  sure 
and  ade(iuate  returns  for  his  labor." 

GROUNDS  OP  THE  PROTECTION  THEORY. 

3  Answer  to  the  Free  Trade  Argument  as  to  Cost  — 

Turning  now  to  the  question  of  the  effect  of  protective 
duties  on  the  cost  of  commodities,  the  advocates  of  l»ro- 
tection  reply  substantially  as  follows  to  the  Free  Trade 
argument : 

"Differences  in  advantages  for  different  kinds  o!  pro- 
duction in  any  country  are  largely  artificial.  The  reason 
why  Nova  Scotia  can  produce  only  one  hundred  pairs  of 
shoes  with  the  labor  that  produces  one  hundred  and  hfty 
barrels  of  potatoes,  is  found  in  tlie  fact  that  she  has  not 
applied  herself  to  the  production  of  shoes.    If  the  impor- 


TJie  Aryuinent  /or  Prolcctioa. 


353 


jion  of  tho  luar- 
iiipt  ftt  sotting 
se  control,  they 
vhich  would  be 
iitruggling  with 

mntees    to    the 
luunerativo  snlc 
without  ruinous 
id  his  workmen 
and   skill,  and 
nnections  which 
rprise.      In  this 
ity  of  industries, 
that  conio  from 
alth  is  rapid,  be- 
^ht  into  use,  and 
jrospcct  of  sure 

THEORY. 

snt  as  to  Cost  — 

feet  of  protective 
advocates  of  Pro- 
j  the  Free  Trade 

eiit  kinds  of  pro- 
cial.     The  reason 

hundred  pairs  of 
hundred  and  fifty 

that  she  has  not 
es.    If  the  impor- 


Uition  of  shoos  from  Now  Kiigliind  were  provontod,  capi- 
tal wouM  b(t  liirgoly  tuincd  inlit  tlu!  shuu  industry,  lh(! 
machinery  would  Ik;  inii)rovo(l,  tlio  laborers  would  liwMjmo 
more  olHciont,  and  presently  Nova-Scotian  labor  would 
become  as  productive  in  the  manufacture  of  shoes  as  that 
of  New  England. 

"  i'rotection,it  is  true,  may  toinj)orarily  increase  the  cost 
of  commodities,  but  in  the  long  run  its  cllect  is  rather  to 
cheapen  them.  It  brings  the  producer  and  tho  cousunuir 
side  by  side,  and  thus  saves  much  needless  labor  in  trans- 
porting things  between  countries.  Thougli  it  oxclu(h;s 
injurious  foreign  competition,  it  preserves  the  iioaltliy 
competition  of  home  producers.  Hy  the  mutual  rivalry 
of  these,  each  of  them  endeavoring  to  produce  his  com- 
modity as  cheaply  as  possible,  every  known  device  for 
saving  labor  is  brought  into  use.  Tho  po.ssession  of  a 
sure  market  enables  the  employers  to  invest  their  sav- 
ings, with  confidence,  in  machinery  and  appliances  of  all 
kinds  for  carrying  on  the  production  in  the  most  ofTeetivo 
way.  The  result  is  that,  in  the  long  run,  the  productive- 
ness of  labor  is  greatly  increased  by  Protection.  Of  this 
fact  many  notable  examples  have  occurred  in  our  own 
history  under  the  present  tariff.  Nearly  all  the  most 
important  commodities  are  cheaper  now  than  they  were 
before  the  tariff  was  adopted." 

4.  Compensations  for  Temporary  Increase  of  Cost  under 
Protection.  —  "  It  follows  that,  even  if  there  were  no  im- 
mediate compensations,  a  protective  tariff  admits  of  easy 
defence  on  the  score  of  cost  of  commodities.  Looked  at 
merely  as  a  device  for  eventually  diminishing  cost,  any 
temporary  sacrifice  it  calls  for  on  the  part  of  any  class 
of  consumers,  is  a  wise  and  useful  investment  of  tire 
public  1  jources.     But  there  are  immediate  compensa- 


354 


fijlitieal  Econmny. 


tioiiH  which,  in   thuraselvt^H.   iii<»n!   than   (MnuituHuihincc! 
the  teinpornry  mldition  to  cost.     If,  by  tho  cxc-hision  of 
Ncw-Kngliind   shoos.  Nova  Scotia  must  for  a  whil((  pay 
inorc  for  licr  sho;-s,  tho  inniicdiato  lillcct  is  an  cxtcn.'^fion 
of  her  own  h(Mno  industries.     This  establishment  of  shoe 
factories  increases  the  denumd  for  her  laltor,  and  wui^'cs 
rise.      Irofits  also  rise,  beca\ise  a  new  oiieiiiri},'  is  pre- 
sented Tor  the  profitable  investment  of  savint^s.     From 
being  a  community  wholly  given  up  to  raising  potatoes, 
she  liccomes  a  community  enjoying  diversified  ompl(«y- 
ments,  with  all  the  social  advantages  resulting  therefrom. 
"On  the  side  of  New  Kngland,  the  exclusion  of  Nova- 
Scotia  potatoes  gives  needful  encouragement  to  the  farm- 
ers.    These  will  get  higher  prices  for  their  crop  when 
they  have  tlie   home   market  to  tliemselves ;   they  will 
therefore   increase  the  production,  —  will   employ  more 
laborers,  and  will  pay  higher  wages  than  they  could  if 
embarrassed  by  the  competition  of  Nova-Scotia  farmers. 
The  additional  price  the  consumers  of  potatoes  have  to 
pay  is  not  lost  as  it  would  be  if  i)aid  to  foreigners ;  the 
money  is  paid  to  our  own  people  and  remains  in  the  coun- 
try.    The  farmers  of  New  p:ngland  will  buy  more  manu- 
factured goods  than  they  could  buy  when  they  got  hm 
for  their  farm  products.     Thus,  the  money  they  receive 
will  come  back  to  those  who  have  paid  it     Further,  tho 
New-England   manufacturers  will   be   protected  as  well 
as  the  farmers ;  they  will  have  a  sure  home  market  for 
all  they  can  produce,  and  will  not  be  compelled  to  sell 
their  wares  in  competition  with  foreign  products.    This 
will  enable  them  to  employ  more   laborers,  and  to  pay 
higher  wages,  than  they  could  if  they  were  exposed  to 
foreign  competition. 

"  In  these  ways  Protection  tends  to  make  both  wages 


{•ouiitcrlmliincc! 
ho  exclusion  of 
for  a  wliil((  jmy 

is  an  (!xtt'M;»iou 
iHliinont  of  hho(! 
ahoT,  and  wuL;eH 
opt'iiin},'  is  prc- 

savinj»H.  From 
raisini,'  potatoes, 
ersifieil  muploy- 
iltinj^  therefrom, 
liision  of  Nova- 
iciit  to  the  farm- 
their  crop  when 
jlvcs;  they  will 
U  employ  more 
in  they  could  if 
a-Scotia  farmers, 
potatoes  have  to 
3  foreigners ;  the 
iain.s  in  the  coun- 

l)uy  more  manu- 
len  they  got  hm 
)ney  they  receive 

it.  Further,  the 
protected  as  well 
home  market  for 
compelled  to  sell 
I  products.  This 
arers,  and  to  pay 

were  exposed  to 

make  both  wages 


The  Ari/utiiint  for  Protidion. 


355 


and  [)nitit.s  high.  It  also  makes  a  nation  independent  of 
foreign  counlrios.  Supplying  all  ht-r  own  needs,  nhu  is 
aide  to  pursue  towards  other  nations  a  policy  of  hccom- 
ing  dignity  and  strcngtii.  In  cast!  of  war,  she  is  not 
taken  at  a  ilisadvantagis  hut  has  within  iicrself  all  the 
resouiecs  for  H(df-suppoi't  and  vigorou,s  action. 

"Whihi  a  protective  tarill"  is  thus  a  good  thing  in  itself, 
it  is  at  the  same  time  a  source  of  revenue  for  tin;  national 
government.  It  saves  the  people  from  the  necessity  of 
'jsaying  taxes.  The  revenue  it  yields  comes  out  (»f  the 
pockets  of  the  foreign  producers;  because  whatever  they 
send  to  us  has  to  Ik!  sold  here,  after  ])aying  tiie  duty,  at 
the  same  price  as  the  iioine  product  that  pays  no  tax. 
N(tt  only  sj  hut  the  jiroUM'tive  tarill',  hy  raising  our  pri<;es, 
compels  th(!  peo[)le  of  other  countries  to  pay  us  more 
for  everything  they  buy  of  us  than  they  would  otherwi.so 
pay."  » 

5.  Peculiar  Necessity  of  Protection  for  the  United 
States.  —  "  iJut  the  great  argument  for  a  high  tarill"  in 
the  case  of  the  United  States,  is  the  necessity  of  jiro- 
tecting   our  laborers  again.st  the  comp(!tition  of  the  ill- 

•  I  iiin  not  sun;  tliut  lliis  latter  ijoiiit,  is  iutliuilly  urj;i'il  !>>'  proti'C- 
lioiiisls;  but  it  in  obviously  true,  so  far  iw  rcniirds  cxcliaiitjo  of  prod- 
ucLs  with  free-trailo  countries.  .Suppo.su  two  eouatricH  bavi;  had  frcii 
iradd  witii  each  other  and  one  of  tiicni  imposes  a  protective  tariff;  tlio 
Jlrst  result  is  lo  checl;  the  movement  of  floods  to  the  protected  coun- 
try, Icaviii),'  the  reverse  movement  untoudied.  Thi,s  leaves  a  balance 
lo  be  paid  in  money  by  the  free-trade  country.  The  trade  is  grailually 
restored  to  ecpiilibrium  by  tlie  conseiiuent  rise  of  jirices  in  tlie  pro- 
tected country  and  a  fall  of  prices  in  the  other,  —  with  the  result  indi- 
cated above.  f)f  course,  it  may  bo  urged  in  reply  that  the  amouitt 
gained  in  this  way  is  but  a  small  compensation  for  the  loss  throui;h 
diminished  trade:  and  further,  that  if  all  countries  adopted  protection, 
the  gain  would  disappear. 


3r.6 


J\>lUi<'al  Economy. 


imi.l  labnrew  of  Kurnpoon  cuntrum.  Hero  it  m  r..ini....a 
to  iutn-lucu  Htulislu-H  HhowiiiK  tlmt  w»«o-mt<!H  ui  (Iroat 
llritain  aro  very  couHi.loml.ly  Lelow  tluj  hivol  of  w«k''» 
i.ui.1  in  Ww  IJniUitl  SlatoH;  and  th.it  wnRo-ratfs  m  (..-i- 
numy.  Franco.  HolKunn,  un.l  ..ihor  couti.ionlul  couMtr.oH, 
nro  in  many  in.lustrios  not  niuro  thun  half  as  high  a.s 
those  luiul  to  our  hihoriirs. 

"Now  if  it  wcro  not  for  tho  tarilV.  Kuroiwan  on.iiloy- 
er8  uctti'ng  laborers  at  suoli  low  rales  i.f  wa«eH.  would  bo 
Ohio  to  flood  our  markets  with  commodities  of  all  sorts 
at  very  low  prices;  prices  so  low  in  fact,  that  American 
employers  must  either  give  up  hiring  laborers  altogelhor. 
or  pay  greatly  reduced  wages.    Tho  cost  of  transporta- 
tion  has  now  been  brought  so  low,  that  the  natural  pro- 
tection  formerly  afVorded   by  our  distance  fr.Jin  fcurope 
has  practically  disappeared.     Kuroi)eaii  products  can  now 
be  sold  in  America  at  so  slight  an  advance  over  the  cost 
to  tho  European  employer,  that,  without  the  protection  of 
,1,  tarifl',  American  industry  must  at  once  sink  to  the  low 
level  of  wages  and  profits  prevailing  in  Europe.     In  sup- 
port of  this  contention,  the  advocates  of  Protection  cito 
freely  f.om  the  statistics  of  wages  and  prices  in  European 
countries,  showing  that  in  every  case  the  level  is  below 
ours  —except,  of  course,  tho  prices  of  those  commodities 
that'  are  regularly  exported  from  here  to  Europe. 

"Our  own  home  market  is  the  best  ami  only  sure 
market  for  American  products.  Much  the  greater  part 
of  everything  that  we  produce  finds  its  buyers  here.  If 
we  surrender  this  market  to  foreigners,  they  have  noth- 
ing to  tender  us  in  return  that  we  do  not  substantially 
enjoy  already.  To  give  up  our  tariff,  then,  would  be  to 
cut  down  enormously  tho  field  for  the  employment  of 
labor  among  us.  Our  most  nourishing  industries  would 
be  instantly  struck  down. 


!ru  it  Ih  coiiitiioit 
;o-mt«!;H  i»  (irt'iit 

'.    It! vol    ut   WftJ{f8 

igis-ratt'H  in  (li-r- 

llt'lllill    COUMtliliH, 

half  a»  high  u.s 

uMiHjnii  ctniiloy- 

wages,  would  l»c 

[itioH  of  all  sortH 

t,  that  Ainciicaii 

joruiH  ull<)gt'Uii'r, 

at  of  transpoitu- 

thc  natural  pro- 

nce  from  Eunum 

l)ro(luct8  can  now 

iico  over  the  cost 

the  protection  of 

0  sink  to  the  low 
Euroi)e.  In  sup- 
of  Protection  cite 
)riccs  in  Kuroi)oan 
,ho  level  is  below 
those  commodities 
to  Europe. 

8t  and  only  sure 

1  the  <^reater  part 
3  buyers  here.  If 
s,  they  have  noth- 

not  substantially 

then,  would  be  to 

lie  employment  of 

g  industries  would 


Tht  Aliment /or  Protection. 


3r,7 


"The  doctrine  of  Free  Trade  is  an  Knj,diHh  invontioji, 
adapted  only  to  further  the  interoHts  of  Hrilish  manufac- 
turers. \\y  nii-auH  of  it  these  liojio  to  keep  all  other  coun- 
tries in  indu.strial  vassalaf^e  to  England.  Every  other 
•country  that  has  accepted  the  theory  of  Kruo  Trade  has 
been  kei>t  in  backwardnti.ss  and  poverty.  Those,  on  tho 
other  hand,  that  liiive  pursued  the  policy  of  I'rotection, 
have  grown  and  advanced  in  wealth  with  rapid  strides." 

In  support  of  this  view,  [)rotectionist  writers  appeal  to 
econonjjc  history,  giving  statistics  of  decline  in  Free-tmde 
countries,  and  of  industrial  growth  wherever  Trotection 
has  prevailed.  In  fact,  tho  protectionist  argument  runs 
throughout  very  much  in  that  channel.  It  is  largely  an 
appeal  to  facts,  which,  in  the  view  of  the  writers,  go  to 
show  that  I'rotection  is  either  an  industrial  necessity, 
or  has  proved  itself  in  practice  to  be  a  powerful  agercy 
in  building  up  national  prosperity.  This  makes  it  very 
dillicnlt  to  state  tho  case  for  I'rotection  in  brief  form.  It 
is  an  argunient  that  does  not  easily  accommodate  itself 
to  abridgement. 

The  favorite  field  from  which  to  draw  proofs  of  the 
beneficent  action  of  I'rotection,  is  tho  record  of  our  own 
national  growth  under  the  .system,  especially  tho  growth 
since  tho  adoption  of  the  present  tariff. 

PREB  TRADE  REPLY. 

To  these  arguments  the  advocates  of  Free  Trade  rejdy 
in  substance,  as  follows : 

6.  Feebleness  of  Industries  that  Live  by  Protection. — 
"  Differences  in  advantages  for  dilleront  kinds  of  produc- 


'  I 


>  *, 


85«^ 


Ihlit.ii'itl  Ecu  no  II*  ^. 


li,m  II.  a  .;.MiMlry  .vr.<.  n..  Am\M,  miftietiroo«  Rirtlflcial.  but 
they  am  not  usually  '^'•-    'n>'>  iuU.lli«.'»n*  .u.-l  t.ut«r|./i«« 
„i  tt  cuuntrs'M  l.uMiuuH«  iu««  may  sufoly  I-  tru.UMl  U. 
,U«c..viT  au.l  utili/i.  iU  nu.H  (avural.l.  op,.nrlm..tu-H  for 
Ih,.  u«n  of  .ai.itnl  unl  lul"-.-.     If  iuauniry  lu,  l.tt  wahou 
intorfcron.v.   it    will   Hi.ontttuoou.ly   Hi-k   out   the  iuohI 
l,r.Hluctivu  .'hmui.'lH  fur  itKulf.     Tho  fuu.l.u.u.i|tal  ovil  u 
,;  nroUiCtivc  tarilf  i^.  that  it  makes  very  little  attemi. 
to  .li«tin«nish    tho    aiir.nMHVH    that    an,    art.fk.al   rn. 
t...ui.oraiy.  fro...  ihoHO  that  are  natural  ami  la«tin«.     It 
inviteH  HUM.  t..  lly  iu  the  face  of  nature.  pa^smK  hy  the 
better  ehunee  a,ul  taking  tho  wur.o  one.       IhiH  •«  why 
taritV  .n.luHtries  uev.r  «et  bey-m-l  tho  noed  of  ,,rot«ctl.m ; 
never  are  rea»ly  to  ntand  on  thoir  own  bottom. 

"If  U8  nrotectioniitts  are  apt  to  aHsume,  tho  .luestion 
wore  of  hiving   temporary  i-ublic   aid  in   humdma  u.^w 
industries,  svhi'l*.  ouco  eHtablished.  c.uld  stand  and  lo.ir- 
isli  on  their  own  ineritfl,  most  free-traders  would  gladly 
share  the  burder.  ..f  Kiving  it. -whether  by  l'<;"'»ty;'r 
by  temporary  tax    on    the   imp<ut«d   article       Hut   tho 
.mostion  is  very  rarely  of  that  character.     Men  are  apt 
to  nuvko  the  nustako  of  supposing  that  because  wo  have 
reascmably  K'»'d  resources  for  the  production  of  a  given 
commodity,  the  producer  ct  it  would  need  only  temporary 
protection,     Hut  it  may  happen   that  our  resources  of 
Lther  kimls  are  vastly  superior.     In  that  •  ise  temporary 
pr.,tection  would   be   of   no   avail;  th.»   .uoinent   it  was 
withdrawn,  trade  would  seek  the  easier  way  of  procuring 
tho   commodity, -namely,  by  giving  our  mmo  cu.picUH 
produ<-t  in  exchange  for  it.     For  s.hat  is  .called  protec- 
tion  against   foreign    competition   is  always,  in  reality, 
protection  against  our  own  better  resources.     Such  pro- 
tectiou  can  never  he  withdrawn  without  the  result  of 


Th«  Ari/utMui  /or  /Vm  frtult. 


3r.O 


w  ftrtlflciul,  but 
I  mill  t'liU'ri-'iBO 
r  \tty  truMtutl  to 
|(|ii.rluiiitit'H  for 
l.io  If  ft  wilhout 
E  out  tho  lIlOHt 
liumuital  »»vil  of 
y  littlt*  altt!iui»t 
t)    iirtiflriiil    rml 

uiiil  luHtiiiK'  ^^ 
,  imsHiii;^  hy  tho 
I).  TliiH  is  why 
jil  of  protDction ; 

))ottom. 

iiic,  tho  «iui'8tion 
n  foiuuUiig  iit'W 
I  Htaiul  ;ukI  tlour- 
t>rH  wo\ihl  gladly 
icr  hy  bounty  or 
rtide.  Hut  tho 
•r.     Men  are  apt 

bociuiHc  wo  have 
uctiou  of  n  givtin 
1(1  only  tuinporary 
our  rcHourccH  of 
it  <  iHC  toiupornry 
I   uioiucnt   it  waH 

way  of  procuriut? 
our  inoro  copioUH 
;  is  calluil  protcc- 
.Iwayfl,  ill  reality, 
•urces.  Such  pro- 
out  tho   result  of 


MiidiiiK  our  labor  ami  capital  buck  into  their  Uiost  pro- 
(luetivH  I'iiannclH.  Witness  the  inibmlrieH  which  aro 
now  still,  alter  Hovcnty  ycarH  of  greater  or  U'mh  (usually 
greater)  protection,  as  ileiHiudetit  on  tho  taritl'  a.s  they 
were  at  the  bc^inniliK." 

7.  The  Queation  of  Oemiind  for  Labor  and  for  Prod- 
OOtl.  —  "  Ah  to  tausiii;^  iiunasetl  tlenuiiul  for  lalior,  Ntop- 
pa^e  of  trade,  with  other  coimtricH  can  never  do  that.  1% 
only  (diaii'jcH  the  direction  of  tho  demand.  In  proportion 
as  you  Ht<ip  iinportH  you  stop  exports  too,  in  the  lonj^ 
run.  There  is  as  much  denuiiicl  for  labor  to  niak(«  mIiucs 
to  bo  sunt  to  NoV:)i  Scotia,  in  u.xchaiigo  fo;'  potatoes,  as 
there  W(»uld  be  to  raise  the  potatties  at  home.  Further, 
the  rewards  of  labor  depend  on  its  ptodui^tivoness :  and 
since  interferenco  with  free  e.vchanye  prevents  us  from 
getting  things  in  tho  easiest  way,  it  must  lesson  wages 
ond  profits.  Any  ri.so  of  money-wages  duo  to  n,  tariff 
is  more  than  offset  by  tho  higher  prices  of  most  things 
laborers  have  to  buy. 

"As  to  the  market  for  products  of  labor,  when  a  pro- 
tective tariff  is  first  imposttd,  it  docs  for  a  little  while 
make  the  sale  of  some  goods  easier,  hy  excluding  foreign 
products.  Hut  herein  it  is  simply  like  an  issue  of  in- 
convertible currency :  tho  effect  lasts  only  till  industry 
ailjnst.s  itself  to  the  situation.  Kurther,  whatever  a 
portion  of  the  community  gain,  even  temporarily,  is  at 
tho  expense  of  tho  rest.  For,  in  tho  oxamplo  (»f  New 
pjigland  and  Nova  Scotia,  the  producers  of  pcttatoes  in 
Nova  Scotia  and  of  shoes  in  New  Knglaiul  find  tho  mar- 
ket for  tiicir  products  narrowed  by  the  tariff:  what  tho 
others  gain  these  lose,  and  much  more  besides. 

"Would  New  England  gain  by  tho  exclusion  of  Dakota 
whoat,  or  of  Texas  beef  ?     Nobody  argues  that  free  trade 


4 


:wo 


iStlitkal  Eeonomjf. 


Mmmi  nur  Rtnton  losnoiw  th«  .Unmiul  for  hhot,  or  for 
.,ro.luct«  of  labor,  in  any  i-art  of  tlio  irnimi  W  »'.t 
•tmnua  quality  U  It.  in  lh«  national  l.oun.  un|.«.  lliat 
inakoH  fri'«  Iru.Ui  with  \H>oyh  livinn  l..'yontl  tl»(m.  <to 
iiijuiionH  ti'  till-  vIh'Io  <niiiilryr' 

8  QiiMtlon  o(  Dlvarilfled  EmploymonU.  •to.  — "  Ah  to 
aivorHill.Hl  in.luHlry,  th.Tu  in  no  .liuiK'T  llmt  any  .ivili/,.-.! 
nation  Hlmll  lu.k  (livcrHity  of  „int.l..ymfiiitH.  Tl.«  nuiu- 
Ikt  .-f  .ounmHlitU'H  in  many  tinn-H  too  gn-at  to  hav«  any 
wlw.li-  rounlry  dovotml  to  |.roau<in«  any  on«,  or  «v«n 
any  tw.mty  of  th«in.  It  in  umm  almurdity  t<.  H|M(ak  an 
if  tho  wboln  ,.oi.ulntion  of  tlio  Unitwl  SiafH  .oul.l  m  any 
mm,  1.11  farnuTH.  K..rdKn  countri.m  wouUl  liavo  no  do- 
,nu„d  for  omj-halt  of  the  hmti.Iuh  crop  that  w<.uld  Iks 
raiHo.l  WiMioul  tlio  u.rilT.  as  with  it.  wo  «hould  devote 
lahor  K.  aKri.Hilluro  only  ho  fur  an  that  i.n.nuH.  d  hest  ro- 
turnH  For  the  rost  w«  «honl(l  Y^nUirv  at  honi«  all  thinnH 
that  wo  couM  not  ohtain  nioro  .hoaply  hy  «x(lmiiK«  witli 
other  countries.  Piicm  wuul.l  arrange  thoniselvca  8o  as 
to  make  this  certain.  , 

"Ah  to  war.  imroHirlrto.l  tra.le  between  countries  is 
the  best  Kuarat.UKi  for  i  .ace.    It  cultivaU-s  friendly  inter- 
course      HesideH.  if  it  W(.uld  make  us  dei.endent  on  our 
„,.i^d.bor.s,  it  would  make  thein  e.iually  dci-endent  on  us. 
9    Protective  Duties  the  most  Burdeniome  Taxes.-  "So 
far  "from  a  protective  tarilV  Ikmiik  a  way  to  obtain  a  rev- 
,.„ue  with..ut  tax.!M,  it  is.  in  fact,  the  most  burdensome 
f.,rm  of  ta.xation.     Tin,  dutien  actually  colh^ctcd  are  paid 
by  our  own   couHumerH.  f<.r  no   man  imports  a  foreiRU 
product  unless  its  price  hero  Ih  (Miough  above  the  pnco 
i„  the  (>thcr  country  to  give  the  importer  a  proht.    With- 
out the  duty  we  HlK.uld  get  it  at  a  lower  price.     But  the 
tea',  burden  of  the  tarilV  does  not  lie  in  the  taxes  wo  pay 


1%«  Afyumtnt  /or  Vrtt  Trmh. 


36t 


(or  liibor,  or  for 
Union,     Whtit 

iiiuiiilnrit'N,  that 
tyond  thuni,  ao 

I,  eto.  ~-  "  Ah  t« 
lilt  any  tivilizfil 
iitM.  Tlu<  nuiu- 
vtit  tu  havu  any 
ly  oii«,  or  oven 
lity  to  «|Muik  a« 
lU'ft  could  ill  niiy 
ultl  liftvo  no  (l«3- 
)  thiit  would  l»o 
0  hIiouM  devoto 
troniiht'il  lu'Ht  ro- 
,  homo  nil  thiuKn 
y  uxchftngo  with 
Lhontsolvus  Bu  as 

cini  countries  in 
,c8  friiMidly  iiiter- 
lUpendcnt  on  our 
Icpondcnt  «)n  ub." 
)m0  Tax«i.  — "So 

to  ohtain  a  rev- 
nost  burdtMisoine 
•ollticted  are  paid 
imports  a  foreign 
J  above  the  pric" 
!r  a  profit.  With- 
ir  iirice.     But  the 

the  taxes  wo  pay 


nnd><r  it.  It  doprivtm  thn  iwoplu  of  mnny  fimun  ntoru 
tliiiu  it  t(lv«m  to  tho  Tn*aNnry.  Thu  nml  Iohr  liim  In  thn 
diiiiiiii<^hi<d  produi'tivcnt'n^  f)f  our  labor.  Thn  tnrilT  <'Iohi>!« 
to  UH  tho  «'a,-*ii'»it  wavH  of  obtainiiij^  many  of  thn  things 
wo  ntu'd,  and  forooH  us  upon  haidcr  ways.  It  li-avcn  ns 
for  our  lalior,  fnwur  ••njoyablo  commoditicN  than  wo  nu'i^ht 
havn.  Tho  Iohs  it  inflicts  fn  tlnToforo  not  nicas  irald".  It 
iH  prtH'iMoly  mucIi  a  \<n»  as  wo  hIkmiIiI  muHit  if  wo  won' 
forhiddini  to  inilt.vata  oi.r  inont  fnrtilo  lands,  to  work 
out'  inoHt  productivtj  mine",  or  to  uao  uur  numt  otVuclivt 
niachinury. 

"Supposo  we  had  tw>  aruns  of  land,  on  ono  of  whioh 
n  given  nundtor  of  lubororn  0(uild  frtiso  tinO.OOO  barruls  o! 
potatoc.H.  und  on  tho  other  300,000  barrels  What  should 
W(>  think  of  a  law  tha!  pIiouM  forbid  tl  u  usu  of  the 
hotter  area?  What  slu  uld  wo  answ-jr  if  >  woro  said  in 
justification  of  tho  injur),  that  tho  poorer  land  could 
probably  bo  niado  m  *r«  productivo  than  th(!  other  by 
iniprovemonts  in  lyrieulturt!  ?  —  or  that  it  would,  at  all 
(ivents,  givo  more  oniph)ynK!nt  to  labor  than  tho  other?" 

10.  The  Tarifi  aui  Wages.  ~"  On  tho  groat  (pusstion  of 
wages,  and  competititm  u'th  the  paupt-r  labor  of  Kuro|M', 
the  free-trader's  answer  is  that  wages  in  tho  United 
States  will  d(!per,d  or.  the  general  law  of  wages,  whetluir 
we  have  a  tarifi  or  not  Without  the  tariff,  as  with  it, 
our  capitalists  would  seek  to  make  profits  by  (imploying 
labor.  Tho  tarifi"  cm  only  alter  tho  direction  in  which 
labor  shall  ho  employed,  and,  as  already  pointed  out,  it 
alters  it  for  the  wotm. 

"  It  is  a  fundament  d  err.)r  to  suppose  that  tho  laborers 
of  two  exchanging  countries  are  in  competition  with  each 
other.  The  only  way  in  which  tho  pauper  laborers  of 
Europe  can  lower  Wiyei  in  America,  is  by  coming  over 


•I 


362 


J'oUtical  Economy. 


i     » 


-  J 

h 


lu'.ro  to  (utiiiiH'tc  in  mir  liilmr  iiuirkct.  VVIiilci  thoy  atuy 
at  hoiiKS  i\w  iiinni  ch.'.iii.ly  ilu^y  ami  tlinir  (iiiiploy'-fH  pro- 
(luco  ooiniiKMliti.'s  for  us.  thci  l.iitUir  it  is  for  all  chimin 
of  AiiKirirauH,--  hircid  laliumiH  a.s  woll  as  otlicrs.  If  tlioy 
Htdoil  mitly  to  sell  us  thuir  i.rodiKits  for  oiic-tcnth  of  tlio 
priciis  they  an;  likely  to  (IciMand,  the  (»nly  oil. :<;t  wouM 
1)0  to  inoreaso  yroatly  tli(!  returns  for  capital  and  labor 
h.ire.  It  would  simply  l)o  for  us  like  a  lalior-saviiig 
iniprovein(!iit,  that  should  (Miormously  eheapcn  those 
eonimodities. 

"This  su«,'<,'osts  th(!  <'(;ntral  fallacy  of  tho  whole  pro- 
tectionist argument  on  this  head.  It  takes  for  granted 
that  Furope  w<iuld  overstock  our  markets  with  all  com- 
modities, —  forgetting  that  she  would  exiuict  products 
of  ours  in  niturn.  The  freest  trade  could  only  result  in 
a  simple  exchiingo  of  certain  products  of  American  labor 
for  certain  products  (tf  European  labor;  and  it  is  mere 
absurdity  to  allege  that  we  should  sull'er  injury  by  get- 
ting large  (luautities  of  Europe's  products  for  small  quan- 
tities of  uur  own.  It  would  be  for  Europe  to  complain 
in  that  case,  not  for  us."^ 

The  facts  appealed  to  in  support  of  Protection  '  ave 
been  frequently  traversed  by  free-tradc  writers.  These 
explain  and  interpret  the  facts  diflerently,  — maintaining 
that  the  advocates  of  Protection  make  the  mistake  of 
attributing  all  the  good  that  happens  where  Protection 
exists,  to  Protection,  and  all  the  evil  where  Free  Trade 
exists,  to  Free  Trade.  The  recent  great  development  of 
J  The  complaint  of  European  protectionista  is,  in  fact,  the  rever.se 
of  tliis,  — namely  that  American  products  are  too  cheap.  In  spite  of 
the  high  wages  prevailing  here.  Franco  and  Germany  have  imposed 
protective  duties  on  American  products. 


J*rotccti(m  and  Free  Tr'fde. 


363 


Vhilt!  thoy  atuy 
(!iii|il<)y(!rH  i)r(i- 

for    nil    (^lllSSOH 

[(tliers.  If  thoy 
mc-tcnth  of  tlio 
ly  oll'c'it  woultl 
piliil  uiid  liihor 
a  liilior-saviiig 
cheapen  those 

the  whole  pro- 
kes  for  {^ranted 
Ls  with  (dl  coia- 
iX]MV,i  products 
d  only  result  in 
American  labor 
and  it  is  mere 
r  injury  by  get- 
1  for  small  quan- 
ope  to  complain 

Protection  '  ave 
writers.  These 
y,  —  maintaining 
the  mistake  of 
vhere  Protection 
here  Free  Trade 
t  development  of 

t,  in  fact,  the  reverse 
o  cheap.  In  spite  of 
rinany  have  imposed 


tlu!  United  Statt's,  for  f^\amp^^  tlicHo  wriUTs  attributes 
to  th(i  HidiJiidid  natural  nssountiis  of  the  country,  and  to 
the  gniat  iiM|iniv<!ni<MitH  in  produrtion  and  triinsportation 
that  liavo  comi;  into  use  in  tlic  last  thirty  years.  Of  tho.sn 
ntsourccH  and  iniiirnvurncntH,  thcsy  liohl,  we  siiouM  liav(! 
had  (ivtiii  fulhir  advantaj,'!!,  had  not  tlus  tarifl'  hampered 
us  in  the  nirist  ell'cctivi!  ways  of  using  them. 

TIkj  advocat(!S  of  Protection  characterize  the  whole 
argumcMit  for  Free  Trade  as  a  mere  setting  up  of  abstract 
thcori(!S  in  oj)positi()n  to  jdain  and  visibh;  facts.  Their 
own  view  they  assert  to  lie  that  of  practical  men,  familiar 
with  the  actual  alhiirs  and  business  ntice.ssities  of  the 
cf)untry. 

Th(;  advocates  of  Fr(!C  Trade  allege  that  the  argument 
for  Protection  is  based  on  a  defective  and  fallacious  view 
of  the  facts;  that  it  jicrsistently  overlooks  ([uite  half  of 
the  case,  and  by  resting  too  much  on  superficial  and 
variable  matters,  such  as  the  value  of  money  in  different 
countries,  loses  itself  in  a  tangled  web  of  men;  sopliistry 
and  s<df-deception. 

With  this  brief  outline  of  the  argiimonts  on  each  side, 
1  leave  the  reader  to  sift  and  examint;  the  contending 
claims  for  him.self.  The  problem  may  .seem  highly  com- 
plicated, but  it  is  really  not  more  so  than  most  other 
([uestions  in  practical  economics.  A  little  careful  think- 
ing, using  the  light  of  first  princijiles,  can  hardly  fail  to 
lead  to  a  just  judgment  upon  the  merits  of  these  rival 
plans  for  promoting  the  general  wealth. 


Hi 

3*. 


CHAPTER    XXVTT. 


CONOLUDINO    8UOQE1STION8    ON    VARIOUS    TOPICS. 

We  have  now  touched,  in  one  form  or  another,  on  all 
tlio  leading  principles  of  economic  theory.  The  more 
extended  study  of  the  subject  consists  mainly  in  ampli- 
fying these  principles,  in  tracing  out  more  fully  their 
relations  to  each  other,  and  in  considering  the  modifi- 
cations to  which  they  are  subject  in  different  states  of 
society,  and  under  different  social  and  political  institu- 
tions. 

By  way  of  assisting  the  student  in  gaining  a  compre- 
hensive grasp  of  the  whole  subject,  up  to  the  point  we 
have  reached,  the  following  notes,  suggestions,  and  prac- 
tical applications  are  appended;  — 

1.  Particular  and  General  Casen.  — Many  of  the  more 
common  slips  in  reasoning  about  economic  subjects,  arise 
from  failure  to  observe  the  difference  between  things  that 
are  universally  true  and  things  that  are  true  only  in 
limit  d  cases.  By  way  of  help  towards  guarding  against 
such  slips,  a  careful  study  of  the  following  truths  is 
recommended : 

A.  Things  possible  in  limited  cases  but  quite  im- 
possible universally, — 

1.  Any  one  commodity,  or  any  limited  number  of 
commodities,  may  rise  or  fall  in  value  at  any  time ;  but 
304 


rous  TOPICS. 

■  another,  on  nil 
ory.  The  more 
uainly  in  nmpli- 
nore  fully  their 
rinc  the  modifi- 
fferent  states  of 
political  institn- 

aining  a  compre- 
to  the  point  we 
istions,  and  prac- 

any  of  the  more 
lie  subjects,  arise 
iween  things  that 
ire  true  only  in 
guarding  against 
llowing  truths  is 

IS  but  quite  im- 

nJted   number  of 
at  any  time ;  but 


Particular  and  Gcricrnl  Cases. 


365 


it  is  quite  impossible  for  all  conunodities  to  rise  or  full 
in  value  simultaneously.     If  .some  rise,  others  fall. 

2.  Any  one  commodity,  or  any  limitiHl  nuiid)er  of  com- 
modities, may  be  produced  in  excess  of  the  demand  at 
any  time ;  but  it  is  quite  impossiblu  that  all  products 
should  lie  in  excess  of  the  demand  at  one  and  the  same 
time.  If  the  supply  of  some  things  be  excessive,  the 
supjily  of  otiier  things  is  deficient  to  tiie  same  extent. 

These  two  proi»ositions  are  intimately  connected  with 
each  other.  The  only  evidence  of  overproduction,  in  any 
case,  is  a  fall  in  the  value  of  the  product.  Since  all 
things  cannot  fall  in  value  simultaneously,  there  can  be 
no  simultaneous  overproduction  of  all  things.  There 
can,  however,  be  a  general  fall  of  prices ;  and  the  situa- 
tion that  brings  it  rnay  have  all  the  awkward  features 
that  would  attend  general  overproduction.  But  it  is 
highly  important  to  keep  in  mind  the  fact  that  gold 
is  a  product  of  labor,  and  that  a  fall  of  prices  is  due  to 
a  deficient  supply  of  this  particular  product.  The  use  of 
money  is  so  peculiar,  and  the  opportunities  for  producing 
it  are  so  limited,  that  one  is  apt  to  leave  it  out  of  view 
as  a  product  of  labor.  A  general  fall  of  prices  is  in  fact  a 
call  for  more  money ;  just  as  a  rise  in  the  value  of  iron 
is  a  call  for  more  iron.     (See  pages  137-140.) 

Remembering  that  buying  and  selling  are  at  bottom 
exchanging  of  products,  it  is  easy  to  see  that  supply 
of  one  thing  is  demand  for  other  things.  Supply  and 
demand  are  therefore  simply  opposite  views  of  the  things 
offered  for  sale.    Do  not,  then,  make  the  mistake  of  look- 


tjM 


3Gf) 


Political  Kconomy. 


iiig  at  one  side  only;  of  looking,  for  exaniplo,  at  tli« 
fiirnuii's  HU|.iJy  of  wheat,  and  fcjrgottin;;  his  demand  for 
the  things  he  wishes  to  get  in  exchange  for  Iuh  wheat. 

3.  Some  nieii  may  gain  hy  a  general  rise  of  prices; 
hnt  it  is  ([uite  inipossihle  for  all  men  to  gain  in  that  way. 
What  some  gain,  others  lose. 

77.  Things  always  possible  in  limited  case-s,  hut  not 
possible  universally  unless  special  conditions  be  fuliilled,— 

There  are  many  of  these ;  and  they  are  the  source  of 
most  of  the  economic  fallacies  that  prevail  in  the  world 
in  relation  to  wages,  profits,  prices,  and  the  ake.  lo 
dealing  with  questions  relating  to  these  siibj(!cts,  we  have 
to  be  very  careful  to  distinguish  the  two  sets  of  cases. 
The  following  examples  illustrate  the  point: 

1.  The  price  of  any  one  commudity  or  group  of  com- 
modities may  rise  or  fall  at  any  time,  by  reason  of  some 
circumstance  peculiar  to  the  commodity  itself  or  to  the 
group  of  commodities.  But  it  is  impossible  for  all  com- 
modities to  rise  or  fall  in  price  simultaneously,  unless 
there  be  a  change  either  in  the  supply  of  money,  or  in 
the  (luantity  of  goods  to  be  sold  (the  productiveness  of 
industry). 

2.  Money-wages  in  any  one  industry,  or  group  of  in- 
dustries, may  rise  or  fall  at  any  time  for  reasons  pecu- 

'  liar  to  the  industry  or  group  of  industries  affected.  But 
it  is  impossil)le  for  money-wages  to  riae  or  fall  in  all  in- 
dustries simultaneously,  unless  there  be  a  eh'  'ig.;  eit^^ar 
in  the  volume  of  money-savings  or  in  the  mniibar  of 
laborers  to  be  hired. 


rarticuldr  and  General  Casta. 


367 


xaiiiiil(!,  at  till) 
his  ik'inand  for 
[or  luH  vvhuiit. 
rist!  of   pricos ; 
ilia  ill  that  way. 

cases,  hut  not 
ns  he  fullilled, — 
ro  the  source  of 
ail  ill  the  world 
d  the  like.  lu 
uhjects,  we  have 
vo  .sets  of  cases, 
loiiit; 

r  group  of  coin- 
j  reason  of  some 
'  itself  or  to  the 
lihle  for  all  coui- 
^aneously,  unless 

of  money,  or  in 
productiveness  of 

,  or  group  of  in- 
for  reasons  pecu- 
es  affected.  Uut 
or  fall  in  oil  in- 
3  a  ch  .g.  >.-i'.;Tier 
\  the  iiuuii'Or  of 


3.  A  tax  on  any  one  commodity  caiise.s  its  value  and 
price  to  rise;  hut  an  e(iual  ta.\  on  all  imiducts,  including 
gold,  wctuld  not  raise  the  value,  or  the  price,  of  nny.  It 
would  simply  lessen  tlie  rewards  of  iiroduoers.  [Kvery 
tax  on  commodities  has  this  latter  ell'ect,  whetlier  it  acts 
through,  or  without,  change  of  values.  Compare  tlie 
opposite  case  of  improvements,  page  106.] 

4.  If  the  lahorers  should  hegin  to  altar.don  coal-mining, 
wages  in  that  industry  would  have  to  be  advanced,  and 
the  price  of  coal  would  rise ;  hut  an  equal  riso  of  wages 
in  all  industries  would  not  he  attend^'cl  by  f\  general  rise 
of  prices.  There  would  l)e  a  general  fall  of  profits.  Sim- 
ilarly, a  fall  of  wages  in  any  one  indu.stry,  owing  to  a 
grcatir  inclination  of  the  lahtirers  to  enter  it,  would 
bring  a  fall  in  the  value  and  price  of  the  product;  but 
a  general  fall  of  wages  would  not  cause  a  general  fall  of 
prices.  It  woukl  only  cause  a  g»^->  lul  rise  of  profits. 
[The  change  of  wages,  in  these  cases,  is  not  the  cause 
of  the  change  of  value.  Both  changes  are  e.fects  of  the 
changed  conduct  of  the  lahorers.     See  page  97.] 

The  reason  why  the  single  case  is  so  different  from 
the  general  case  is  easily  seen.  In  economics,  as  in  ofher 
things,  results  must  have  adequate  causes:  you  cannot 
make  something  out  of  nothing.  If  there  be  a  regiment 
to  feed,  aqd  only  a  certain  quantity  of  bread  and  meat 
to  do  it  with  each  day,  everybody  sees  at  once  that 
the  average  share  cannot  exceed  a  certain  amount.  Any 
one  company  may  havb  its  allowance  enlarged ;  but  in 
that  case  we  readily  see  that  the  allovance  to  other 


'If 


-.fs 

i 


J'ulUieul  Jiconoiny. 


coi.iitauicH  has  to  l)o  aiiuiniHlinl.  Yot  niio  is  lial.lo  to 
arguu  about  wa^os.  prices,  ami  sucli  subjects,  as  if  there 
couUl  bo  a  general  rise  at  any  lime,  without  any  addi- 
tional means  for  niaiulaining  the  rise. 

No  doubt  there  is  an  elastic  (Hiality  in  the  agencies 
that  set  the  level  of  wages  and  priiies.     There  is  always 
a  reserve  of  savings  awaiting  investment,  of  goods  await- 
ing sale,  of  money  awaiting  expenditure,  and  of  laborers 
seeking   employment.     In   a   loosely   organized   society, 
such  aa  goes  with  individual  liberty,  these  reserves  are 
to  a  large  extent  necessary,  and  where  not  necessary  they 
.are  unavoidable.     The  existence  of  tliem,  and  the  possi- 
bility of  increasing  or  diminishing  them,  makes  the  action 
of  economic   principles  less  sharp  and  sudden  than  it 
would  otherwise  be.    By  drawing  on,  or  adding  to,  these 
reserves,  a  temporary  effect  may  bo  obtained  at  seeming 
variance  with  the  general  principle.    The  general  level 
of  prices  may  be  raised  somewhat  for  a  time,  without 
increase  of  money,  on  the  simple  condition  of  adding  to 
the  unsold  stock.     Wages  may  be  temporarily  raised  at 
any  time,  without  increase  of  saving,  simply  by  drawing 
on  the  ordinary  reserve  of  savings,  or  by  adding  to  the 
number  of  laborers  out  of  employment.   There  is,  in  fact, 
no  limit  to  the  prices  sellers  raight  ask,  nor  to  the  wages 
laborers  might  demand.    The  difficulty  comes  in  selling 
the  whole  product  at  prices  too  high  to  match  the  exist- 
ing supply  of  money,  and  in  tindug  employment  for  all 
laborers  at  wages  too  higli  to  match  the  current  flow 
of  savings. 


uno  Ih  lialilo  to 
(jectH,  UM  if  there 
ithuut  liny  addi- 

iii   the  agenciuH 

Tliero  is  always 
t,  of  goods  await- 
I,  and  of  laborers 
rganizcd  society, 
heso  reserves  are 
ot  necessary  they 
m,  and  the  possi- 

makes  the  action 
.  sudden  than  it 
r  adding  to,  these 
;ained  at  seeming 
Ihe  general  level 
:  a  time,  without 
ition  of  adding  to 
iporarily  raised  at 
limply  by  drawing 

by  adding  to  the 
,  There  is,  in  fact, 
:,  nor  to  the  wages 
y  comes  in  selling 
0  match  the  exist- 
mployment  for  all 

the  current  flow 


Jiconomic  J'rincijilfH  rvfjuire  Time, 


auu 


2.  Slow  Working  of  Economic   Principle!.  —  Tlut  point 
just  coiisnicrcd  in  a  good  illiistrution  of  a  general  truth 

which  the  student  must  always  keep  in  mind, namely 

that  economic  principles  take  time  to  wiuk  themselves 
out.  They  are  only  certain  to  prevail  in  the  long  run. 
They  have  at  any  given  moment  very  litth;  of  tlie  char- 
acter of  physical  laws,  which  assert  themselves  irresisti- 
bly in  every  case.  Tlwy  are  rather  principles  of  human 
action,  true  of  men  in  the  average  so  long  as  they  act 
intelligently.  What  we  call  the  law  of  prices,  for  exam- 
ple, operates  mainly  as  an  argument  i>re.seiited  to  the 
minds  of  those  who  have  things  to  sell,  or  wish  to  buy. 
The  argument  is  weak  at  first  and  may  be  thrust  aside ; 
but  the  longer  it  is  resisted,  the  stronger  it  grows.  In 
the  long  run  men  find  resistance  to  be  a  source  of  loss, 
and  we  assume  that  for  their  own  advantage  they  will 
yield. 

Every  result  that  depends  on  competition  must  have 
thkj  -efmisite  time  to  work  itself  out;  and  the  less  mobile 
Um  elements  in  the  case,  the  longer  the  time  necessary. 
For  example,  the  values  of  commodities  that  require  long 
time  for  their  production  are  slower  to  conform  to  their 
cost  than  the  values  of  commodities  that  arc  cjuickly 
made.  Again,  prices  of  things  are  much  slower  to  fall 
when  the  situation  requires  a  fall,  than  they  are  to 
rise  when  the  situation  warrants  a  rise.  Everybody  who 
has  invested  savings,  counting  on  the  old  prices,  is 
pledged  to  resist  a  fall.  Undertakings  that  require  ex- 
tensive machinery  or  other  fixed  capital,— railroads,  for 


■;i 


I 


1 


4 


370 


Pblitieal  Economy. 


oxamplo.^arosiowor  to   have   their  rrofit«  brouKht  to 
tho   conuaoa   level,  than  uiulertakinys  that  rciuire  but 
little  outlay.    This  is  OHpeciully  true  whore,  as  ,n  the 
caso   of  railroads  between   most  towns,  only  one   sucli 
estublislnnent  is  needed.     If  two  be  built  th.re  is  not 
tmlhe  enough  to  keep  both  fully  e.m.loye.l.  and  the  con- 
„e.n..nco  is  a  "  war  of  rates."  whicli  means  total  loss  o 
earnings  for  both  roads.     ConuK3tition  acts  smoothly  and 
ollectively  only  when  there  is  room  for  several  competi- 
tors    As  tho  country  grows  and  business  increases,  it  can 
hardly  bo  doubted  that  competition  will,  in  the  l.mg  run. 
ansert  its  force  in  railroad  earnings  as  in  other  things. 

3-  Temporary  and  Permanent  Re.uIU.  -  -  Uecauso  ocon- 
omi,;  pru.ciples  take  time  to  work  themselves  out.  it  is 
essential  for  the  student  of  economics  to  distinguish,  in 
many  cases,  between  temporary  or  immediate  elVects  and 
the  permanent  results.  Wo  have  had  occasion  to  noto 
a  good  many  examples  of  this.  Artificial  interference 
with  the  natural  progress  or  tendency  of  industry,  is 
very  apt  to    lavo  au  ultimate  ellect  very  dillerent  from 

tliat  at  the  outset. 

(1)  A  tax  suddenly  imposed  on  the  production  or  ira- 
portation   of  any   commodity   would   give,  te.nporarily 
lugb  profits  to  thase  having  stocks  of   the  article     but 
the  high  gains  would  not  continue. 

(•n  A  strike,  in  favoring  circumstarces,  may  extort  a 
rise  of  wages  in  any  industry :  but  if  wages  were  pre- 
viously as  high  as  competition  tended  to  make  them,  the 
rise  cannot  be  maintained. 


ts   brought  to 
at  re<iuiro  but 
ore,  ns  in  the 
)nly  <»m)    hu^'I* 
It  thurc!  is  not 
I,  ivuil  tbo  coii- 
is  total  loss  of 
J  smoothly  ami 
uvoriil  conipoti- 
lucreasos,  it  can 
in  tlu!  long  run, 
ithur  things. 
-IJecauso  ocon- 
selvcs  out,  it  is 
[J  distinguish,  in 
liatu  cll'ccts  and 
)ccasion  to  noto 
;ial   interferonco 
of  industry,  is 
y  ditlerent  from 

Toduction  or  im- 
ive,  teniptjrarily, 
the  article     but 

es,  may  extort  a 

wages  were  pre- 

)  make  them,  the 


Tempornr]^  nnd  Dermnnrnt  Kficfu. 


371 


(3)  An  incrouMt)  of  the  doinand  for  any  commodity 
rnisoH  the  value  t'jmiionirily,  nnd  with  it  the  wagea  and 
profits  of  the  producers;  i»ut  tlio  [lermanent  cllect  ia  to 
cause  increiiaed  prtMluction  of  the  commodity,  without 
any  oxn'ss  of  gnlns  over  those  made  in  othiT  inchistriea. 
The  converse  in  true  in  the  case  of  diminished  demand 
fur  an  article. 

(4)  The  temporary  ell'ect  of  increasing  the  supply  of 
money  in  u  country  may  be  to  lower  the  rate  of  interest  j 
also  to  (juicken  the  sales  of  goods.  Jhit  the  permanent 
elleet  is  only  to  lower  the  value  of  money,  —  that  is,  to 
cause  a  rise  of  prictis  (and  money-wag('s).  The  rate  of 
interest  nnd  tlie  dilHcultiea  of  trade  return  to  their 
normal  condition. 

(5)  The  temporary  efTect  of  increase  in  the  nundtcr  of 
laborers  is  to  lower  tlie  rate  of  wa<,'cs.  The  effect  in  the 
long  riui  may  only  bo  to  cause  a  proportional  increase  of 
savings,  through  increasing  the  i)roduct  of  industry.  A 
constant  addition  has,  however,  the  constant  result  of  keep- 
ing wages  somewhat  lower  than  they  would  otherwise  be. 

(6)  A  tariff  on  iniportls  may  have  the  temporary  effect 
of  causing  high  profits  in  the  production  of  things  pre- 
viously obtained  by  foreign  trade,  and  low  profits  in  tho 
production  of  exports.  In  the  long  run,  competition 
diverts  capital  and  labor  from  the  production  of  exports 
to  the  production  of  things  formerly  obtained  by  ex- 
change with  other  countries;  and  profits  in  the  ttiriff 
industries  are  brought  to  the  same  level  as  profits  in  the 
other  industries. 


I 


'^ 
k 


•i. 


/Widenl  *'" 


,7,   Sl.uil..rly  whon  dull..  .«  .l-li"!'"''.  '»""  '"''"'• 

1  i,u.ly     »l"d-a  by  U>«  U„1IV,  ...  th.  l.r.^-'«,  »f 

„|  cc„uo,„ic  tl,«..ry  |.rc»^"l»  »"  •""")        '""  ' 

,    1  ,Ct:.a  the  .t>,a™t  .,„„.,t  t„.,«n,  n,M.,u.... 
„,a.A,  „aiu  *a,  v.«  ...a.«,,«  .t     A  ;-^^^^^^^^^^^^ 

,,rc»™t  tlK.n«lvc»,  in  practico,  ...  o..o  or  oll-r 
'*::'T.T:i;anBCO.n,o,.oy-wagc,,«iU,aco™.l.-..a. 

iim  change  of  I'vices. 

Case  II.   A  change  of  inouoy-wagcs.  withou    •' 

BwndiniJ!  chatige  of  prices. 

Case  III.    V  change  of  prices,  without  a  corrcs,oudu.g 

^^Z:u;:r^-n^  the  principles  stated  in  the 

,^,  chapters,  that  fonr.Une.^^^^^ 

i>lav  at  any  give  ti.i.'i,  "'  f"""8  '""  "-""'" 
Ce»  an/tlfc  gceral  fcve,  of  vrioos,  namol,: 
I.  The  number  of  laborers. 


llf'ayrn  in  a  1h'0win4j  ('ommunUj/, 


Uiril)  in«Ju"- 
luatrics  liiivn 
)  lun^j  run  if* 
icm  o(  thiiiKw 
trixiuctiou  v)f 

iw  imiK»rt«. 
tc,  —  >'r.  i^vrt 
H  (•(  dill..  uHy 
to  tl>«  »<jnrco 
L'ltc  Bul.jcct  ia 
iro  n(i  ]MiiiiH  in 
civreful  study 
e  of  Hcrvice  in 
ItH,  prices,  and 

lividual    wagcH 
r  otli'i"  ot  tlie 

,h  a  corrcspoud- 
dthout  a  C0"^«- 
a  corrosi  uuding 

Bs  stated  in  the 
uicnts  come  into 
scale  of  money- 
uamely : 


2.  Tht)  total  vulunifl  of  coniiuoditii'M  prodiioodt 

3.  Tho  Mupply  of  mont'y. 

4.  Tlu)  HtrenKtli  of  the  j«pirit  of  «nving. 

Kach  of  tlu'so  cluntiiiitH  In  liiililo  to  olmnj^f'.  Tlio 
fourth,  uo  dttubt,  changes  hut  shiwly,  .siucn  it(ht|H>M(lK  on 
tho  gunerul  chnraotor  ami  tniiipt>rarn*<tit  of  nion,  —  thin(|H 
which  UM  not  Huhjoct  to  violent  ttuctuatioiiff.  Mut,  in 
ovury  growing?  rouiitry,  tho  other  thri!«i  are  couHtantly 
cxpuiuliuj,'  Kvury  incroaNO  of  population,  every  indiis- 
triiil  iniprovt'nu'nt.  evory  chang'?  in  tho  supply  of  gold 
or  in  tho  uso  of  suhstitutcH  for  it,  may  iuivc  an  oU'ect, 
temporary  or  lasting,  on  the  earnings  of  thu  individual 
laborer.  Assuming  the  fourth  element  to  ho  constant, 
tho  courKo  of  wages  deiwnds  on  the  relative  rata  of  in- 
crease of  tlie  other  three.  Of  course,  if  the  throe  expand 
orpi.nlly,  there  is  (on  the  assumption  named)  no  olVect  on 
indi  vidui'.l  wages,  money  or  real.  Hut  the  three  may 
not,  and  in  fact  usually  do  not,  expand  equally.  There 
are  three  ropreaontative  cases: 

A.  All  t;hree  oxpanding,  hut  the  supply  of  money  not 
increasing  at  the  t-amo  rate  as  tho  number  of  laborers 
and  thu  volume  of  products  (the  two  latter  increasing 
e<[ually);  tbt*  general  level  of  prices  rises  or  falls,  with 
a  corrjapouding  change  of  money-wages ;  no  necessary 
change  of  real  wages,  nor  of  profits.  [Casi;  I.  above.] 
There  may,  however,  bo  temporary  effects  of  no  small 
importance,  owing  to  tho  dilUculty  of  readjusting  the 
scale  of  moncy-wnji;t'9  and  of  prices,  so  as  to  conform  to 
the  changed  (relntivc)  supply  of  money.  (See  Cliaptcr 
XIIL,  §§  9  and  10.) 


Dtlilieiit  Kroiwmjf. 


11    A«  t1ifi'«   l..'rrn«l««.  Iml  Hu,  im.nlM.r  of  luboruw 

„„t  i...T...,.in«  at  ll.«.  -» ml"  '"*  H'"  ^"»'"""  "'  '"^"•'"':''" 

,...,   th.  Hupply  n(   n.o»«y   (th«  two   lutU.r  .xi.«.ul.n« 

,,,t  l^.n  (l.nth  ..urnoy  u..a  r«ul)  an.l  prutll.  r,H«  or 
full  If  thu  in.^roa»o  of  i.r.-.l...lH  nu<\  in-Muy  !»«>  "i-w 
mi.ia  timn  tho  i.H«n..im,  of  lul.onMs.  th.  flrnt  .iVont  h 
a  riHO  of  profiln;  -m  h  ....ployur  Imn  .uor«  KooUh  to  ««U 
than  iKifor.  (in  proportion  to  tlu.  nui..».«r  ..f  laborers   .« 

„„.l,l„yH).  U...I  tluT.    iH    HO   f.n    of    Viluo   to   olVHCt   tho    lu- 

croL  "f  MHUMtity.    Thn    «...»«rul  rino  of    prolltH  nmy 
1„,  couiitml  o„  t..  <:au.o  ii.oruaHo  of  ^^.^viuKs.  uiul  thus  K- 
carry  th.  uroator  part.  ..r  oven  thn  whole,  of  th«  i.u-,n.uHea 
pro.lu.:t  t..  wa«...H.     Thosu  aro  tho  ulV.ictn  of  uU  K|"'"ral 
i,»provo..KmtH  i.i  tho  artH  of  proauction.  «uch  as  tho  i.i- 
v.-ntion  of  tho    Htenm-ongi...- ;  aim.,  of   ovory   mcrcaHo 
i„  tho  p.-rH..nal  oHlciuncy  of  tho  lahorcrH  in  all  inauHlno«. 
Hoth  mon.7  ana  .•ouiinoaiti.is  hoco.m,  n.oro  plentiful    in 
comparimm  with  thu  nuu.l.or  of  lal.on,rs:  n..h  nmn  has 
n.or.  n.on.-y  aiul  nmr.  «o.hI  thin^n  for  hU  lahor.     If.  on 
tho  othor  h.ma.  tho  inoroam,  of  proau-as  una  mm.oy  l.c 
l.,Hs  rapia  thu.i  tho  incrcaHo  of  luhorors.  tho  Hrnt  cttoct 
iH  u  acoli,.o  of  prolitH  ana  this  is  f.aiowoa  hy  a  falln,«-on 
in  HavinKH.-thus  throsvinj.  a  part.  ..r  oven  all.  of  tho 

r<',.u..   II    tilxivc  1     If   tho   (locrcasi!   of 
lo»8  on  waj^os.     [(  asii   1 1.  ai)(»v(.  |     n    ^"^ 

pro.hi.-t  1.0  auo  to  tho  nucossity  of  prcs.sinK  m.nio  claHHos 
„f  natural  ngonts  hey.na  tlunr  point  of  niaxiniuin  rotiirn. 
thero  iH  a  riso  of  8..ino  prices,  ana  a  fall  of  othorn,  tho 
general  lovol  ron.aining  tho  Haino ;  an.l  rents  riHO. 


r  of  liiboruM 
ti  of  i»r<«liiitH 

N  iitichiuigi^il. 
:otlt«  rm  or 
iii-y  Ik!  luoru 
ilrnt  I'lVina  i.» 
^^u^n\H  Ut  noW 
if  liiliorotH  ho 
oIlHot  llio  in- 
jirotltM  may 
1,  uiul  tllUH  to 
llu)  illCri!!lHC«l 

of  all  Koiioml 
ich  M  tht!  iii- 
ivory   iiicroa«o 
ivU  induHlrios. 
•0  plentiful,  ill 
t«iiih  iiuui  Ims 
liihor.     If,  "11 
iiiitl  mouoy  bo 
tilt!  tli-Ht  elVuct 
by  a  falliii^^-oiV 
;eii   all,  of   tbu 
10   (lucriiaHu   of 

ly    80IIU!  clttHSliS 

uimnm  rutiirn, 
i  of  others,  the 
silts  rise. 


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^^ 


Watjes  in  a  Orowing  Community. 


376 


C.  All  three  increasing,  bvit  the  voluine  of  proilucts 
not  increasing  at  the  satne  rate  as  the  mnnber  of  laborers 
and  the  snpply  of  n:;>ney :  nioney-wnges  remain  the  same, 
but  prices  rise  or  fall  and  real  wages  and  prolits  fall  or 
rise.  Though  each  man,  whether  laborer  or  emidoyer, 
yets  the  same  money-income  as  before,  his  income  reck- 
oned in  things  is  dill'erent.  In  this  case  the  change  of 
real  wages  if  direct  and  automatic ;  that  is  to  say,  it  is 
not  brought  about  through  an  antecedent  efl'ect  on  protitc. 
When  any  of  the  things  laborers  consume  are  reduced 
in  price,  wliether  by  imi)rovements  in  production  or  by 
the  opening  of  trade  with  other  regions,  the  result  is  an 
immediate  rise  of  real  wages.  Further,  the  rise  is  per- 
manent, unless  by  more  rapid  increase  of  numbers,  the 
advantage  be  in  part  or  wholly  transferred  to  the  em- 
ployers. The  opposite  result  follows  a  rise  of  price  of 
any  of  the  things  consumed  by  laborers,  —  whether  the 
rise  be  due  to  increased  cost  of  productioji,  or  to  the 
cutting-ofl'  of  trade  with  other  communities.  [Case  III. 
above.]  The  differences  between  this  case  and  the 
second,  arise  from  the  fact  that  here  the  laborer's  earn- 
ing power,  measured  in  money,  does  not  change,  whereas 
in  the  other  ca.se  it  does.  The  second  case  relates  to 
universal  changes  in  the  productiveness  of  labor;  this 
one  to  changes  in  particular  industries  other  than  the 
production  of  gold.  As  already  pointed  out  (page  107), 
the  course  of  afl'airs,  in  practice,  presents  a  combination 
of  the  two  cases. 

D.  If   now  the  general   disposition  to  save  becomes 


37G 


Polilicnl  Kconomy. 


stronger.  oacU  of  the   forogoing  oases  becomes  tnodilicij 
in  tav".r  ut  wag(3S  an-l  against  profits.     Kirst  of  all,  v  here 
population,   product,   and    luoiuiy   increase  equally,   the 
more  strenuous  saving  causes  a  rise  of  individual  wages 
(l.oth  money  and  real)  and  a  fall  of  profits, -giving,  for 
the  laoorcr  the  same  ellect  as  the  first  alteriuitive  under 
li.    In  A.  money-wages  rise  more  than  prices,  or  do  not 
fall  so  much:  real  wages  rise  and  profits  decline.     In  B. 
(,ach  man's  wages  (money  and  real)  rise  more  than  his 
pr.)duct  increases,  or  fall  less  than  it  decreases.     In  C. 
money-wages  rise,  and  real  wages  rise  more  than  propor- 
tionally to  the  increase  of  individual  product,  or  fall  less 
than  tiie  product  falls  ofV.     In  every  case  the  advantage 
gained  hy  the  laborers,  through  increase  of  the  disposi- 
tion to  save,  is  gained  at  the  expense  of  the  employers' 

profits. 
5.  The  auestion  of  m  Eight-hour  Law.  — Tt  is  of  the 

highest  importance  in  tlie  discussion  of  practical  cases, 
to°distinguish  changes  of  wages  that  are  at  the  expense  of 
profits  fi"om  those  that  are  not  so.  In  such  a  question  as 
that  of  the  proposed  eight-hour  law,  for  example,  every- 
thing turns  on  the  effect  a  reduction  of  hours  would  have 
on  the  volume  of  product.  If  in  eight  hours  the  laborers 
would  produce  as  much  as  they  now  produce  in  ten 
hours,  the  change  is  in  every  way  desirable ;  it  may  be 
made  without  loss  of  wages,  or  profits.  If,  however, 
the  reduction  of  hours  means  a  reduction  of  product  also, 
it  involves  a  fall  of  profits,  or  of  wages,  or  both  The 
question  as  to  the  product  is  one  of  fact,  which  economic 


Proponed  Eiijhl-hour  Kmn. 


377 


les  tiiodificu 
i)f  all,  V  hero 
[jnually,  the 
ndual  wayes 
—  giving,  for 
native  under 
>a,  or  do  not 
cVim.     In  Jf. 
oru  than  his 
iases.     In  C. 
than  propor- 
t,  or  fall  less 
lio  advantage 
'  tlu'  disposi- 
le  employers* 

-Tt  is  of  the 
ractical  cases, 
he  expense  of 
a  question  as 
:ainple,  every- 
rs  would  have 
•s  the  laborers 
I'oducft  in  ten 
le;  it  may  be 
If,  however, 
f  product  also, 
or  both     The 
hich  economic 


theory  cannot  dei;idc.  But  wc  may  r.afely  lay  down  the 
principle  tliat  a  diminution  ot  individual  product  impliea 
an  inevitable  reduction  of  individual  rewards. 

Tlie  roductiiin  of  h(»urs,  it  is  true,  seems  to  bo  contem- 
plated only  fur  certain  classes  of  city  laborers;  and  the 
expectation  may  be  that  the  decline  of  product  in  the 
eight-hour  industries  would  be  mi'de  good  to  the  eni[iloy- 
ers  by  a  rise  of  the  value.  This  is,  of  course,  conceivable ; 
bui  it  is  not  therefore  practicable.  The  result  would 
obviously  be  to  favor  particular  classes  of  lal)orer3  at 
the  expense  of  the  rest  of  the  community.  To  maintain 
the  favored  classes  in  the  enjoyment  of  higher  wages  for 
a  day  of  eight  hours,  than  other  efjually  good  laborers 
are  getting  for  a  day  of  ten  or  even  twelve  hours,  would 
require  that  we  should,  in  some  way,  give  them  a  strict 
nionopoly  of  the  work.  Otherwise  competition  would, 
in  the  long  run,  bring  wages  to  correspond  with  tho 
quantity  of  labor. 

QUESTIONS  AND  EXER0ISE9, 

1.  Explain  the  process  by  which  export.s  of  merchandise  are 
niarle  to  pay  for  imports. 

2.  When  a  country  exj^orts  more  than  she  imports,  what  is  the 
effect  on  the  rate  of  exchange,  and  why  ? 

3.  How  are  exports  and  imports  kept  roughly  equal  in  money 
value  (or  aggregate  price)  ? 

4.  Show  that  money-wages  may  differ  more,  in  two  exchanging 
countries,  then  the  general  Uivel  of  prices  can  differ. 

ry,  Kxplaui  carefully  the  .statement  that  international  trade 
arises  from  differences  in  the  comparative  cost  of  producing  tho 
articles  exchanged. 


:<78 


rolitical  Economy. 


fl.  Can  .lUTerencs  In  tho  guneral  level  of  wa«e8  lu  two  coun- 
tiiuH  ciiiiw  11  triKlti  lietwcen  tlieiii? 

7,  Sliow  lliiit  the  coHt  to  a  country  of  its  imports  is  tho  cost  of 

inoiluciiij:  itH  cxiuirts. 

8.  SuppoMo  liil.or  LeoaiiH!  twice  as  productive  as  it  is,  in  all 
our.  industrifs,  wiiivt  would  tho  elTect  be  on  tho  cost  to  us  of  our 
imports?  Would  tho  chan;,'"  cause  us  to  export  or  import  any 
articles  not  now  exported  or  imported? 

|».  Tiiere  arc  tw..  countries,  A  and  H.  Each  of  them  produces 
at  home  its  whole  supply  of  wheat  and  cloth,  and  tho  prices  in 
each  are  as  follows : 

In  A  wheat  is  sjtl.no  a  bushel ;  cloth,  i91.tM>  a  yard. 

In  IJ  wheat  is  $t>.HO  a  bushel ;  cloth,  81.<M»  a  yard. 

If  now  trade  be  oinju-d  between  them,  what  course  will  it  prolv 
ably  lake?  What  will  determine  i\w  international  value  of  wheat 
and  cloth  ?  Does  it  follow  that  tho  production  of  either  wheat  or 
cloth  will  bo  wholly  abandoned  in  either  country? 

10.  There  are  two  countries,  C  and  D,  which  have  had  no  trade 
with  each  other.     Prices  and  money-wages  differ  as  follows : 

In  C  wheat  is  *-^\0()  a  bushel;  cloth,  %\.rM  a  yard;  coal,  |8.00 
a  ton;  shoes,  $fl.n<)  a  pair;  wages,  *:i.()0  a  day. 

In  I)  wheat  is  sjil.OO  a  bushel;  cloth,  «0.7.5  a  yard;  coal,  fl.OO 
a  ton  ;  shoes,  fJU.OO  a  pair ;  wages,  iJU.OO  a  day. 

If  tra.le  be  oixjued  between  them,  what  will  be  the  probable 
course  of  affairs?  [Cost  of  transportation:  wheat,  10  cents  a 
bushel;   cloth,  1  cent  a  yard;    coal,  «l.r,0  a  ton;   shoes,  2  cents 

il  l"^'""']  .     r«  I,    1 

11.  If  in  the  preceding  example,  the  price  of  wheat  in  C  had 

been  iJl.OO  instead  of  $2.00,  what  difference  would  this  make  as 
regards  the  course  of  tho  trade? 

12.  When  a  high  tariff  is  adopted  in  a  country,  explain  care- 
fully the  effect  on  the  industries  producing  exports,  (live,  step 
by  step,  the  process  by  which,  in  such  a  case,  exi^rts  aud  imports 
are  restored  to  equality. 


vajjes  iu  two  couii- 

iIH)rts  ii)  the  cost  of 

live  aH  it  iH,  in  nil 
lio  cost  to  us  of  our 
port  or  import  any 

h  of  them  prodiiocs 
I,  and  tlio  prices  in 

yard. 

yard. 

t  courso  will  it  prolv 

ional  value  of  wheat 

II  of  either  wheat  or 

try? 

ill  have  had  no  trade 

fer  as  follows : 

I  a  yard;  coal,  |b.00 

)  a  yard ;  coal,  f  1.00 

\ill  be  the  prohahlc 

:  wheat,  10  cents  a 

ton  i   shoes,  2  cents 

5  of  wheat  in  C  had 
would  this  make  as 

ountry,  explain  care- 
exports,  (live,  step 
ex^wrts  aud  imports 


QuMtiona  and  E^rrriMt. 


379 


1:1.  Do  Ilia  samo  for  the  caHo  of  a  country  in  w'lioh  dutli-s  on 
imports  urn  riMlueod  or  uholishcd. 

II.  Tukint,'  the  facts  f>ivt'n  in  <|U<!stioii  10,  as  n-pn'siMilalivi)  of 
the  f,'(^ni'ral  iliiinicturof  tlio  two  countrli's,  C  and  I>,  \vhi(!liof  them 
is  best  for  a  lalmrer  to  live  iu  ? 

1.").  Wliy  does  not  cost  of  production  rcunliite  lln'  values  of 
comnuidilics  in  trade  bet  ween  countrien?  Wliy  ilocs  it  do  so  in 
any  trade? 

1(1.  Docs  the  importation  of  goods  lesson  the  market  for  tiie 
products  of  homo  labor  in  a  country? 

17.  What  aril  the  chief  sources  cf  ditlerenco  in  the  comparative 
cost  of  commodities  iu  dilYerent  euuatries? 

IS.  Kngland  buys  of  us  annually  about  twice  as  much  as  wo 
buy  of  her.  [For  1H8.S  tiio  (i^jnics  were  tlirce  hundn'd  and  eight 
millions  against  one  hundred  ami  tifty  millions  of  dollars'  worth.] 
IIow  do  you  reconcile  this  fact  with  the  general  principle  of  trade 
iietween  countries? 

l!»  Show  tliat  the  abolition  of  our  tariff  would  i>robably  bo 
followed  by  a  rise  in  tlm  value  of  nu)ney  in  this  country  (j.  e.,  by 
a  fall  of  prices). 

20.  Would  all  prices  be  likely  to  fall  eiinally  in  that  case? 
Would  the  price  of  wheat,  foe  example,  fall  as  much  as  the  price 
of  ylasM-waro,  or  of  cloth  ? 

21.  Would  nujnoy-wages  be  likely  in  fall  in  the  same  ratio  as 
the  general  level,  or  avtirage,  of  jirieesV 

22.  Show  that  foreign  products  might  be  excbided  from  our 
markets  by  means  of  duties  on  our  exports.  Show  also  l»ow  the 
situation  would  differ  from  that  in  which  the  exclusion  was 
brought  about  by  prohibitory  duties  on  im]>orts. 

2.1.  If  you  had  the  power  of  adding  ten  per  cent,  to  the  wealtli 
of  the  country,  shoidd  you  make  the  increase  in  money,  or  in 
other  things?    If  in  money,  would  it  be  likely  to  renuiin  with  us? 

21.  Would  the  addition  of  a  hundrt  .1  millions  to  the  coin' in 
geuer.al  circulation  in  the  world,  ditTer  in  effect  from  an  equal 
extension  of  bank  currency? 


^^^ 


380 


PolUirnl  Kfonomy. 


25.  Wliy  i"  «l<'iiiftn.l  for  comiuodltlcd  not  a  demftiul  for  labor? 

In  it  Mi>  ill  uny  ciwiiV  »    »  »i 

•JO.   How  .loM  tlio  xm  of  I'rlHon  Labor  in  rro'b.ction  affect  tl.o 

intoroHtH  of  friH!  liilHin-rs? 
•>7    Wi.y  an,  tlio  wii^.m  of  'voiuon  1..W.T  Ihun  tl.«  wnR..«  of  men? 
'JM.  WJuil  iH  the  fallacy  of  the  .loctrinn  that  wagon  ar«  l-aLl  out 
of  tiio  pro.luct  of  tJi8  labor  thoy  rewar.1? 

"II  In  what  foriiiH  .l"  chanK'.'^  -f  r.-al  wa«.-s  preNciit  thcmHolven? 
In  what  preciso  form  .lo  bird  labor.-rs  rccivo  benefit  from  rail- 
roa-ls?  fn.u.  increas...!  porHonal  .■fflciency  on  tiicir  own  part  in  all 
in.ll.^.lrio«?  from  li-sHeno.l  cost  of  pnulucinB  cl..tbing  and  fuel? 

:t(l.  Mention  caHCH  in  wl.icli  tl.o  ixfrmanont  rcHuIt  of  economic 
cliangfs  .litTern  from  the  temporary  r'.'Hult. 

ai  (Jive  examplcH  illustrating  tbe  ntateincnt  that  "  many  tbingn 
are  always  possibl..  in  every  ca,  e  ningly,  wl.ici,  are  never  possible 
universally,  unless  some  siwcinl  condition  be  fnUilled." 

:{'•  Suppose  the  present  owner  of  every  hired  house  in  New 
Y„rk,  should  make  a  present  of  it  to  the  tenant,  would  house- 
rents  fall  in  the  city?  . 

■M  A  man  mortgages  his  farm  as  security  for  a  loan  wherewith 
to  build  a  mill.  Supposing  the  farm  an-l  the  mill  to  be  taxed  at 
their  full  value,  ought  the  mortgage  to  be  taxed  also?  Is  the 
general  wealth  greater  than  it  would  be  if  the  lender  had  built 

the  mill  himscdfV 

•M  Show  that  a  siwcial  tax  on  all  farms,  or  on  farm  products, 
must  fall  on  the  consumers;  but  a  tax  on  the  economic  rent  of 
land,  falls  on  the  land-owners  alone. 

85.  If  a  special  tax  were  suddenly  imposed  on  the  rent  of  land, 
show  that  it  would  iK)  a  practical  confiscation  of  a  portion  of  the 
wealth  of  the  present  owners.  Would  future  purchasers  be  bur- 
ilened  by  such  a  tax?    [Remember  how  the  price  of  lan.l  is  fixed.] 

Ufl.  Show  that  the  prop..scd  Single  Tax  on  land,  in  order  to  be 
just,  must  be  confined  to  the  increase  of  rent  after  the  tax  is 
imposed. 


Brt>»nd  for  labor? 

iliii;lii>r>  affoct  the 

ho  wapton  of  nio»? 
vu^;<'s  am  l>aiil  out 

•BHoiit  thcniHfi'.veH? 
Iiciipflt  from  rall- 
oir  «)wii  i>art  in  all 
)thing  and  iml'l 
rcHult  of  oconotnio 

that  "  many  things 
iiift  never  possihlo 

lIllltMl." 

red  houno  iit  Nnw 
lant,  would  houso- 

r  a  loan  wherewith 
mill  to  be  taxed  at 
ixed  also?  In  tlii! 
10  lender  had  built 

•  on  farm  products, 
0  econoniie  rent  of 

on  the  rent  of  land, 
of  a  portion  of  the 
!  pnrchaHers  be  bur- 
ice  of  land  in  fixed.] 
land,  in  order  to  be 
jut  after  the  tax  ia 


INDEX. 


TIIK   Nl'MIIKIIS   UKFI'.II   T(»   PAOKH. 


Abstinoncp,  a  pfirt  of  tin*  cont  (o 
I'inploycrH,  but  not  of  the  trmt 
coHt  of  production,  75,  U 1,  '.»(>!), 
U«7. 

Hank  currency,  ir><). 

ItillH  of  oxcliangn,  '>V2i. 

Bimetallism,  177. 

Huyln|[{  and  sellinjs  the  Heparutcd 
halves  of  economic  exchange, 
'.'();  buying;  easier  than  Hell- 
ing, 28. 

Capital,  three  forms  of,  50;  is 
coiiHumed,  fi-'l;  fixed  and  cir- 
culating, (M;  the  capital  of 
to-day  a  legacy,  (!.") ;  rei)rc»ent,s 
improvements,  Ofl,  70;  how 
created,  (10,  7*1;  owned  by  a 
few,  72 ;  how  related  to  sav- 
ings, OH,  71 ;  cost  of,  25.'). 

ComiKitition,  in  selling,  80;  tends 
to  equality  of  rewards,  10.'), 
215,  220;  erroneous  view  of, 
216;  coml>inations  to  defeat, 
118,  231,  200;  obstructed  in 
itsaction,  113,  217,220. 


Cost,  to  the  I'Uiploynr,  02,  2(V1- 
200,  200;  true  or  economic 
cost,  01,  lot,  and  appendix 
n(it<> ;  cost  in  both  sensus, 
nia<le  up  of  many  small  parts, 
102;  ditliculty  of  analy/.ing, 
lo*;  econondo  cost  governs 
natural  valii.-,  105;  lessened 
by  improvements,  100;  does 
not  include  risk,  108;  relation 
of  to  international  value,  332; 
sources  of  ditferenco  in  com> 
parativo  coat,  343. 

Demand  and  supply,  action  of  in 
fixing  market  value,  HO;  de- 
mand for  commodities  not  a 
demand  for  labor,  237 ;  de- 
mand for  commodities  not  les- 
sened by  saving,  230. 

Deposits  (bank)  as  currency,  151. 

Diminishing  returns,  law  of,  201 ; 
consequences  of,  310. 

Division  of  labor,  advantages  of, 
IH;    makes    exchange    neces- 
sary, 22;  liow  men  kuow  what 
to  produce  under,  105. 
381 


8H2 


Jndtx. 


DoiiMm  KtaiKiaril,  107. 

Dull  tiiiiun,  iittl'.rii  ot,  l^J'^  l'>4. 

Kinpl")''''*'  f '""^''""  "'•  "^"^ '  •"""' 
iUof,  «..•  I'iiiIUh;  ii.)t  iMxixiii- 
nIIiIii  for  low  wiiKfH  o(  woriu'ii, 
•.»*.M;  i'init!i>y«r'«  cont,  U'.>, '.'•'>  1. 
'J(ll»,  :IH7. 

KxchiiiiKo  of  prixliiclH  mail.-  in- 
cnHmviy  Ity  (UvUioii  of  lul>or, 
a.';  oliKiMintd  Ity  iwoof  iiioih'V, 
'Jtl;  cftirieil  on  I'y  liad'Ti^, -H ; 
compllciUcil  Willi  paymt'iil  of 
wu«o«,  :»;»,  i:j:J,  i:»i»,  101,  '.'HH. 
'.Ml ;  niuHt  kiM'p  paon  with  pro- 
auction,  HH,  r_'H;  cxeliiuigtt 
botwuuii  iiatioiiH,  ;)'-*:). 

Kxporls,   pay   for   imporlH,  !W.'), 
niul  tonil  tofMiuality  with,  iJ'.'f*. 

Fiiio  'I'radu  ami  I'rolL'Ctlon,  310. 


(iold,  nominal  ami  r.iil  domaml 
ami  Hupi'ly  of,  ll-*i  i"**'"  <*f. 
li:i;  has  no  pricu,  115;  pro 
duct  ion  of,  ILT;  prolllsof  koM- 
luining  afft'ctf.l  l.y  rhaiip-*  of 
ptlcoH,  140,  note ;  how  th«  curi;- 
ful  keeping  "f  »1>"  precious 
iiiutals  attecls  their  value,  1 17 ; 
quostionn  bctwuon  ^ohl  and 
silver,  100 ;  ^o\A  Htandanl,  170 ; 
movements  of  gold  helween 
countrieH,  chap.  xxv. 

Improvements  In  production, 
effect  of  on  values,  10(1;  on 
wages  and  profits,  107,  ;J7;i; 


ftgflcultural    Improvomtnii, 
;u>!. 

Iiiconvcrtllili'  noli'ii,  IH'J. 
Interest,  IIMI,  '.T.!),  •J7t». 
luternatioual  tradtt,;W:i. 
liiveiitorM,  lm|Mirlancu  of,  71. 

I.ttlior,  as  an  eleim-nt  in  cost  of 
pro<luction,  O.'f,  cost  of  dllTeis 
lo  dilteroiit  employers,  ^57; 
division  of,  IM;  productlv<i 
lulior,  r»'J;  i)rodui'tiv<ness  of, 
.M ;  iiohproduiliM'  Idior,  0:1, 
'.'•Jil,  :r_M(;  prison  lulior,  -MH. 

hahorcrs,  classes  of,  '.Mlj  may 
raise  wai{es  by  liicroaseil  elll- 
ciency, 'jaa,!};!.'),  :i7l;  not  Um- 
efitud  by  those  who  buy  h'oods, 
2:Jf);  constitute  a  market  for 
all  they  can  produce,  '2'-W. 

Land,  grades  of,  M;  icnlof,'.'HH; 
city  rents,  :i()<t;  why  price  of 
land  so  variable,  HOfl. 

Legal  tender  notes,  IGl,  150;  In- 
convertible, Iti^l. 


Materials,  a  form  of  capital,*!". 

Miuiey,  the  struggle  for,  17 ;  uses 
of,  •_».'»;  value  of,  li.",>;  "circula- 
tion of,  I'.M,  13(1;  two  funo- 
i.onsof,  133;  nominal  and  real 
dennind  and  supply  of,  l'-*V, 
ll'J;  value  of  dilTcrs  in  differ- 
ent countries,  Hi,  3'JI). 

Money-wages,  V.'3, 1!)H,37'J;  scale 
of  inijiortant  ludy  in  relation  to 
pricen,  31,  1!»7,  1235;  differ  in 
different  countries,  336. 


IfidM, 


liii|»rovom«nt«i 

)l>tl>N,  iH-i. 

rail«t,;)'j:l. 
oilrtiioe  off  Tl. 

•IciiH'iit  III  nml  o( 
liri  J  I'o-tl  o(  tlllTi'iH 

uiiiployiTH,  'jr»7; 
,  IH;  ihimIiicIIvh 
|(rn'lui;livi'in;»ii  <if| 
(liK'tivii  labor,   Wl, 

i.Hitii  liilmr,  '-'IS. 
^m'H  of,  '.Ml;  may 

by  liicruuHnil  »tlll- 
'Jiin,  :J7I;  not  Ik!1i- 
jHO  who  Imy  k<'>'<1h, 
ituto  a  mmktjt  for 

pi()ilii<'«»,  -'W. 
i)f.  II;  rent  of, '.'HM; 
:iotl,  vvliy  i>rlco  of 
iul.lo,  :it»n. 
iiott'H,  IGl,  150;  ilk 
,1*1. 

'orrn  of  cajnlal, '!(). 
iii({«'«  fi'i".  17;  UHCH 
uc  of,  !•_'•,>;  ■(•Irciiliv- 
21,  130;  two  fiiiic- 
;i;  nominal  amlvoal 
ml  8U|i|)ly  of,  l'J7, 
I  of  difl'erH  in  ililTiT- 
ie«,  ni,  :J--»I). 
4,VJ:»,  l!tH,:»7'J;  wale 
ntiinly  in  rolation  to 
1!»7,  'J:!');  diHer  in 
louiitrics,  3!J(J. 


Natural  witnltli,  tO;  lnwnf  vnlui* 
of,  4rt,  |IM).  S^o  aUo  Itimt  hihI 
l.aml. 

Natural  valuK,  l(>5;  of  money, 
I'.'il. 

Normal  wn){)*N  ami  prolltn,  '.'IKI, 

Ovflrproiluclion  |ioHNililn  in  Din- 
glo  coinniiHlitioii,  7H,  '.'(]'.*,  but 
not  in  nil,  IDS, -ilM,  :)))5. 

I'arliciiliir  ami  Kfin«ral  cmvh,  iWII. 

rupulutlon,  cITuotit  of  growlli  of, 
40, 'JHO;  cliuckfton  hiun-aNiMif, 
•'ill;  ulliiiialo  liinitHor,:il7. 

I'rictt,  how  (lUlinguixhiid  from 
vnhu>,  8<);  how  tho  K<*>i<'>'nl 
love!  of  prici'M  In  (IximI,  l'.>7, 
14'J;  prict'N  in  intt>rnational 
tra<lo,  «|,  ;Jt.'8, 

I'rinon  labor,  prodiirtion  by,  not 
inJiiriouM  to  fruo  lalxircrN,  'JtH. 

Product !<ui,  nnturo  of,  11,03, 1)1 ; 
re([uiMitti8  for,  B8 ;  in  progr«tHn, 
62. 

I'rod>jc»ivr>ni'«H  of  labor,  M }  ri'- 
lation  of  to  wagt'K,  11)0,  'J'jn, 
«10,  :)74. 

I'rofltH,  itaturo  of  105;  normal, 
20!l;  rat«  of,  hard  to  diHcover, 
208;  profitH  may  beconif  wa(j[<'H, 
211,  'J:(0;  protltH  of  individual 
employnrs,  2.')1. 

Protection  and  fieo  tnuh',  ;ilO. 

QueHtionH  and  oxi-rciHuit,  i)0,  W,\, 
120,  102,  321,  377. 


lUiit,  2Kt|  m\\  rtnta  may  l» 

voinii  wnKim,  :II0. 
Uli^k,  nil  nItuiKuit  In  (•mployi>r'ii 
ctmt,  7H,  'ill;.';  Itut  nut,  in  auo* 
noinlo  co«l,  108. 

HuvliinK,  rxlatinn  of  to  cnpttnt, 
7ft  I  to  wiiK«x,  70,  107,  :«7;»}  to 
tha  latu  of  prolltM,  20l,  225 1 
not  IncrcnMi'd  by  Htriki'N,  2U:i| 
incri'iiNx  of  naviii);  iloim  not 
]i'NH<-ii  diMiiand  lor  };o<mU,  *.<30| 
ri'plaii'mi'tit  of  MaviiiKN  «x* 
IMMid.d,  2i«». '.'11. 

S'liint;,  dillU'iitlii'i  of,  28|  Wwttt^ 
not  dmi  to  Hi'ari-ity  of  money, 
lOO;  profit  and  Iohn  by  Hnlc**, 
2fl(). 

Silvcir,  ronvi»n!r«nco  of,  10.';  do- 
oiiiii' of  vahu',  172;  hIImt  per- 
tillialoM.  \M,  I5N  iiiitr;  .Silviir 
I'liii'liaNi-  Ai'lx  ol  \H'H  and 
i»l)0,  mid  timir  iilTrctM,  IT:i; 
the  ftilver  in  tho  'I'n-axury  not 
a  rcm-rvi',  170.    Sen  alno  j;olil. 

.Skilloil  labor,  prodiictii  of,  113; 
wan«M  of,  220. 

Slow  workiiifjof  economic  prin- 
niploH,  300. 

.Strik.'H,  232. 

.Snpply  and  dnmnnd,  80;  In  Ihii 
(•ami  of  monoy,  121;  supply  of 
oni)  tiling  duinand  for  other 
thin^);,  30.'>. 

'rarilf,  on  iiniK)rt8,  .181. 
'IVtiipditry   and   permanent  n 
huIIh,  37U. 


fHi 


Jnitti 


Vtllli',  Mil  i  I'lMiiim-lloll  wUh  «'0«l 

u(  |M<H|iMtioM,  KM,  \u'n  liuw 
Rflfmli'il  liy  lni|triivt'iinMi»pi.  I'Ml, 

!t7.V,  villi (  iiuliiriil  Mcikltli, 

KMi  1  of  priNliiiU  ii(  Nkllt,  li'Jl 
«»f  «lilii«»t  liikxiiiit  a  I'lli't  '■'«•• 
115;  KiivuriH'il  l>y  <<wl  <»(  '"'••I 
01  wily  |iurl,  'JIMli  raUlUiii  of 
vttliM<  to  ri'iil,  'JI»Ht  liilpriiB 
tl..imlvt»lu.m.  Il.".,;l:l7i  umi<'ri»l 
rlw<  itr  full  of  vttluMH  lm|N». 

■Il.ii',  H".  VflH,  :ill."i;  VullIK  lllll 
nil  iilli'lliiilo  of  ull  wcnillii  i)li 
'2M  iititi*;  liicrviuH)  In  vnliui  of 
iiiitiiriil  wtiuHli  not  n  Kt'oorui 
Kukti,  I'lO, 

\Vu«i'H.  Iiiiluxtriiil  roi»«rniifliic«n 
„f,  77;   |irlii<'i|>l.'K    KoVfriiiiiK 

iiul  waufK.'-M-';  ««|iiiiI1/.Iih{Umi- 

«|(>IU\V      o(      «lllll|Htlili0ll,      'il^i 

iiiirii  itl  iiii'i  niHikt-t  waKe»t,'-'0;l, 
VJI  ;  ri'lulion  "f  wuk«h  to 
|.i(iilii«'l.  IIMl;  >iot  foiiiitl  liy 
d.'diicliiiK  I'lDlltH  from  lln« 
product,  211 1   ittJwjJ  bjf  liu^ 


|iri)v«iii«iit«,  UW,  -Mi  I  ••«»  »•»> 
l.y  •trlkf*.  '/rJt  not  lowi-md 
liy  |irudti«'lliiii  ill  |ir>Miii«,  UlH; 
yt»H>>»  iiiid   tltti  clrculHtluii  ut 

till y.    Ill,    ll»M,    'illi    r»f*l 

wui(i>ii  di!|i<iiid  I'll  tli«  rclalloii 
of  Hutinty-wiiu"*  l«»  iirlc**!  M, 
IHH,   •.':»;..   ;i7'J;     IiIkIi    pf""'* 
fuMiruliI"  l«i  lil«>»  witK«»,  "JW, 
!l7ll  (r»'«  niiHiidiiiK  U  nut  wi, 
'':Mll  «»ty[»'"«   filviir.nt'd   niit  of 
unvliiu*.  7.N  al'Ji  <'Xl«Mitof  tlif 
ttdviiiiii«.  'J\'>\  fttllttiy  of  ilfiiy 
iiiK  llii'  udvniici'.  'J\7\  *■«••»• 
of    wniiiKii.   •-••.';l;   of    iioti  pro 
diK'llvK   liiliiinim,  yJHi  w»i{M«i 
ditft'i'   ill    ditT<'r<Mit    rouiitrifii, 
'.'•JO;    til'"'"  'lilTt'ri'ii«'<''»  not  ■ 
OAUMi  of    iiitfi-nnlioiial   trade, 
iliri.    Si'c  nlno  Moiii-y  wimi'x, 
W.-iiltli,    diHiiml.    ;Uli     iiiilurnl 
wi'iillli   mid  wi'iiltli    produci'd 
liy    lalior,    ;ill ;    liow    iiutiiral 
wnllli  fti-'iuirt't  valut*.  1;l,  1(M»; 
|iindut:tioti  of  \\i!ultli,  41|  f>'i\ 
VIlllU!  of,  Nil. 
WiiltiiiK,  an  I'luiiH'iit  in  co»t  of 
I.ioduotion,  TJ,  U5,  «f»,  iW7. 


(Nl,  1(74 1  liut  iMit 
I'J  I  not  lowcrail 
I  ill  |)r>M>it»,  UlHi 
lilt  clriniltttiuii  of 
IDH,    -.'lli    rnitl 
I  (III  tli«  rvlnlloii 
{OM  to  |trln»ii,  U4, 
'J\     IiIkIi    |ir<iniii 
liiuh  Mitu*)*,  'J'A>\ 
•iiiliiit(  i"  nut  Ml, 
^ilvnt'.oc'tl  out  of 
I'J;  MXli'iit  o(  tlt)< 
I  (ttllm-y  of  •l«'iiy' 
iiipi',  'J\7 ;  wBHi'ii 
:'•.»;»;   of    noil  pro 
ntm,  TJOj  waiciii 
ITi'i'ciit    rouiitrii*it, 
ililTorciio-ii   not  ■ 
I'riintioiinl   trtkile, 
lo  Moiii'yw»««'>t. 
Hil,    :i*l ;     niitur»l 
wmillli   prriilucftl 
II) ;    how    iiiitural 
ri'n  value,  i'A,  KMi ; 
if  wealth,  41,  M\ 


Itiinciit  in  coit  ol 
7'-',  05,  m,  Ml. 


mmm 


